Key Takeaways
- Global stocks decline as oil-driven inflation fears unsettle investors.
- Rising bond yields boost expectations of additional central bank rate hikes.
- AI spending concerns continue to pressure major technology stocks.
Global stock markets head toward a weekly loss Friday as oil prices remain elevated amid escalating Middle East tensions, fueling inflation concerns, pushing bond yields to multi-decade highs and increasing expectations of interest rate hikes by major central banks, driving the broader global stocks slide into a second straight week.
World equities weakened despite modest gains in European markets, while investors weighed rising energy costs, geopolitical uncertainty and signs that central banks could keep borrowing costs higher for longer, a sharp reversal from the trade-driven optimism that lifted markets earlier this year.
MSCI’s All Country World Index fell 0.3% and remained on track for its second consecutive weekly decline, underscoring the extent of the global stocks slide this week. Europe’s STOXX 600 index rose 0.4% after losing more than 1% in the previous session, while major Asian markets posted sharp losses.
MSCI’s Asia-Pacific index outside Japan dropped 2.5%, as the global stocks slide hit Asian markets particularly hard. Japan’s Nikkei declined 2.7%, South Korea’s KOSPI fell 5.7% for its fifth straight weekly loss, and Hong Kong’s Hang Seng index slipped 1.7%.
Oil rally lifts yields and strengthens dollar
Brent crude traded at $98.70 a barrel after climbing as high as $102 on Thursday, when prices surged 7%. Oil prices have risen nearly 40% this month as conflict in the Middle East threatens key global supply routes.
Attacks by Iran-backed Houthi forces on Saudi oil tankers in the Red Sea and continued tensions around the Strait of Hormuz have raised concerns about disruptions to global energy supplies. President Donald Trump also threatened “major military punishment” against Iran and its Houthi allies after U.S. strikes on Iranian targets continued for a 13th consecutive night.
“The dollar has been going up for a few days so clearly the risk has been building and the fact that oil has been at these higher levels for several days has really started to work through the cross-asset correlation,” said Shaniel Ramjee, co-head of multi-asset investment at Pictet Asset Management.
The rise in oil prices, combined with new U.S. tariffs on goods from 60 trading partners, added to inflation concerns. The yield on the benchmark 10-year U.S. Treasury reached 4.7135%, its highest level in more than 18 months, while the 30-year Treasury yield held near its highest level since 2007.
The U.S. dollar strengthened as Treasury yields climbed. The yen remained near a 40-year low at 163.79 per dollar despite repeated warnings from Japanese officials about excessive currency volatility.
Investors reassess tech spending and interest rates
Markets increasingly expect central banks to keep monetary policy tight. Traders now see roughly a one-in-three chance that the Federal Reserve will raise interest rates at its next meeting, while expectations for a September increase are fully priced into markets.
The European Central Bank left interest rates unchanged Thursday, though financial markets assign about a 70% probability of a rate increase in September. Business surveys released Friday showed Germany’s private sector returned to growth in July for the first time in four months, while France’s private-sector contraction eased.
Technology shares also remained under pressure after earnings from Alphabet and Tesla raised concerns about heavy spending on artificial intelligence infrastructure without clear financial returns, adding another layer to the global stocks slide weighing on global bourses. Nasdaq futures slipped 0.1%, even as Intel shares gained more than 4% after reporting stronger-than-expected results.
“These companies are engaging in more capex, and it effectively makes the mega-cap segment of the U.S. stock market more interest rate sensitive at a time where we see bond yields moving up, especially real yields,” Ramjee said.
Investors continue to monitor geopolitical developments, inflation trends and upcoming central bank decisions as the global stocks slide tests market resilience heading into the new week.
