Asian Stocks Tumble as Oil Hits 30 Percent Weekly Gain
Asian equity markets closed sharply lower Friday as crude oil prices extended a 30 percent weekly surge. Bond yields reached multi-year highs, intensifying fears of aggressive central bank tightening.
Asian stock indexes ended trading deep in negative territory. Tokyo and Seoul led the decline, falling more than two percent each. The sell-off followed a record high in the 30-year US Treasury yield.
Crude oil prices have risen over 30 percent in the past week. The US and Iran exchanged strikes near the Strait of Hormuz. Yemen’s Houthi rebels seized control of the port city of Mocha on Thursday.
Energy prices reach five-month highs
Brent crude approached 110 dollars per barrel on Friday. This level marks the highest price since May. West Texas Intermediate peaked above 104 dollars per barrel.
Supply disruptions threaten alternative energy routes in the Red Sea. The Houthi seizure of Mocha cuts off a key shipping path. Markets now price in a prolonged geopolitical premium on energy costs.
Bond yields hit post-2007 peaks
The 30-year US Treasury yield reached 5.36 percent. This is the highest level recorded since 2007. The 10-year yield is near five percent, close to a 19-year high.
A six billion dollar government buyback failed to calm the bond market. Traders had expected a larger intervention. The European Central Bank also raised rates on Thursday, warning of sustained price increases.
Inflation data fuels rate hike bets
US producer prices accelerated to 5.4 percent in August. This figure exceeded the previous month’s 4.8 percent. Energy costs were the primary driver of the increase.
Market participants now see a greater than 70 percent chance of a quarter-point rate hike. This probability is derived from CME Group FedWatch data. The Federal Reserve meets next week to set policy.
The dollar strengthened against the yen following the inflation report. The currency had fallen for a week prior on Bank of Japan bets. According to GN auto markets/indices, the shift in monetary expectations drove the currency move.
