Global financial markets remain in a state of tension. Stocks are falling, and another rise in oil prices has triggered a further selloff in the bond market, pushing the 30-year U.S. Treasury yield to its highest level since 2004. As of publication, Dow futures were down 0.42%. S&P 500 futures fell 0.63%, and this week's gains could be almost entirely erased. With chip stocks coming under selling pressure, Nasdaq futures dropped 1.08%. Major stock indices in Asia and Europe fell for a second consecutive trading day. Earlier this week, gains in stocks briefly pushed the Nasdaq 100 to a record high, but that rally is losing momentum. The market is increasingly worried that elevated bond yields are eroding the appeal of equities relative to bonds and putting pressure on valuations. The latest round of bond selling stems from renewed concerns over stubborn inflation and rising fiscal risks.
Simon Wiersma of ING said: "My base case is not that rising yields will trigger a broad stock bear market, but they may limit further valuation expansion and make corporate earnings growth increasingly important. The key question is whether rising yields are due to still-strong economic growth or because investors are demanding higher compensation for inflation and fiscal risks."
Iranian officials warned that the war could expand to the Indian Ocean, and Brent crude rose toward $104 per barrel. The latest surge in oil prices came after an Iranian official warned that if the United States or Israel launches another attack, Tehran could expand the war to the Indian Ocean. Deutsche Bank analysts noted that Iran's foreign ministry said it had submitted to the United States a list of conditions for restarting ceasefire talks, including acceptance of a shipping route agreed by Oman and Iran, an end to the maritime blockade, and the release of Iran's frozen assets. Iranian President Masoud Pezeshkian also issued a tough statement, saying that as long as U.S. blockades and sanctions continue, Iran will not allow free navigation to resume in the Strait of Hormuz. Iran's semi-official Fars News Agency quoted Yahya Rahim Safavi as saying: "Now the war has expanded from the Persian Gulf and the Strait of Hormuz to the Red Sea, and in the next phase of a potential conflict, it could expand further." Safavi is also a senior member of Iran's Islamic Revolutionary Guard Corps.
Nadege Dufosse, head of multi-asset at Candriam, said: "Overall, oil prices remain the most critical driver. Investors are now almost navigating in the dark, because it is simply impossible to judge which direction the negotiations between Iran and the United States will ultimately take."
Brutal bond selloff continues
The bond market selloff has also spread to Asia. On Thursday, government bond yields in Japan, Australia and New Zealand all rose by more than 10 basis points. Among them, Japan's 10-year government bond yield rose to a 30-year high in overnight Asian trading. The selloff in long-end U.S. Treasuries continued. The U.S. 10-year Treasury yield — the core benchmark of the $29 trillion U.S. Treasury market and an important anchor for pricing almost all global financial assets — rose to 5.145% in early European trading, a new high since the global financial crisis. The 30-year Treasury yield rose 3 basis points to 5.43%. The spread between French and German government borrowing costs also widened to its largest level since former European Central Bank President Mario Draghi's "whatever it takes" speech in 2012. Strong PMI data and a weak-demand U.S. Treasury auction further intensified Wednesday's global bond selloff.
AXA chief economist Gilles Moec said that all the conditions currently driving long-term rates higher are already in place. Moec said: "Inflation is high, central bank officials keep sending hawkish signals, the tech sector's enormous financing needs are also competing for funds, and there is still no reassuring sign in the U.S. debt path." He added: "These are already very major macroeconomic issues in themselves, and on top of that there is an all-or-nothing geopolitical variable, namely how the situation in the Middle East will develop next."
Historical experience shows that a sharp surge in bond market financing costs often places heavy pressure on stocks. The last time the U.S. 10-year Treasury yield broke above 5% was on the eve of the global financial crisis, after which the MSCI All Country World Index at one point halved. Less than 10 years ago, the market also saw a similar situation, when a surge in U.S. Treasury yields toward 6.8% became one of the factors that punctured the dot-com bubble.
Arun Sai, strategist at Pictet Asset Management, said: "There is clearly anxiety in the bond market, there is no doubt about that." He added: "We are going through a phase in which a stable equilibrium is being challenged on multiple fronts, with various narratives competing with one another, and it is not yet clear which one is correct."
Dollar strengthens
Market expectations that interest rates will remain high for longer are also pushing the dollar toward its longest winning streak since May. After Wednesday's strong PMI data, traders now see a nearly 70% probability that the Federal Reserve will raise rates again in October, according to the CME FedWatch tool, up from 50% a week earlier. On the economic data front, the U.S. Labor Department is expected later to report that initial jobless claims for the week ended September 19 may rise to 201,000; continuing claims in the prior week are expected to increase by 15,000 to 1.745 million. August new home sales are expected to edge up to 615,000 from 607,000 in July. Several Federal Reserve and European Central Bank officials will also speak on Thursday, including New York Fed President John Williams, Cleveland Fed President Beth Hammack, and ECB Executive Board members Isabel Schnabel and Philip Lane.
IIF: Global debt rose by $10 trillion in the first half, total exceeds $365 trillion
Data from the Institute of International Finance showed that global debt surged by $10 trillion in the first half of this year, with the total exceeding $365 trillion. Deficits and interest payment pressures have surged in developed economies such as the United States, Japan and Europe. Last year's interest expenses exceeded $3.3 trillion, more than global spending on defense, AI or clean energy individually. The IIF warned that the debt problem has evolved into a political issue, creating a "vicious cycle between election cycles and short-term emergency policies; as the marginal utility of new debt diminishes, long-term fiscal fragility accumulates." The report added: "As benchmark rates rise, interest expenses will surge sharply; while structural pressures from healthcare and public pension spending remain largely unresolved."
Goldman Sachs Asset Management: Fed unlikely to enter a sustained rate-hiking cycle
Goldman Sachs Asset Management said in a report that it still does not expect the Federal Reserve to enter a sustained rate-hiking cycle. The firm said: "We believe tariff- and energy-related price pressures may fade, the economy shows few signs of overheating, and inflation expectations remain anchored." The dot plot from the Fed's meeting last week showed one more rate hike this year. According to LSEG data, money market pricing shows a cumulative 37 basis points of rate hikes across the Fed's remaining two meetings this year.
Focus stocks
Shares of Darden Restaurants (NYSE: DRI), the parent company of Olive Garden and LongHorn Steakhouse, fell 6.6% following its fiscal first-quarter earnings report. Darden's earnings per share were $2.05, in line with market expectations; revenue was $3.20 billion, slightly below the $3.21 billion expected by analysts surveyed by FactSet. The company also reiterated its full-year guidance.
After People Incorporated withdrew its offer to acquire all outstanding shares, MGM Resorts International (NYSE: MGM) plunged more than 9%. Barry Diller said: "The situation did not progress as we expected," but he remains bullish on the company's prospects and still holds 66.8 million MGM shares.
Canadian software and services provider BlackBerry rose 2% after releasing its second-quarter earnings report. BlackBerry's adjusted earnings per share were 7 cents, above the 4 cents expected by analysts surveyed by FactSet; revenue was $163.3 million, compared with the consensus estimate of $142.5 million, beating expectations.
Driven this week by the Muse AI agent concept, Meta Platforms, Inc. (NASDAQ: META) had risen nearly 12% so far this week before pulling back 2%. On Wednesday evening, CEO Mark Zuckerberg unveiled Meta's VR glasses, as well as the handheld device Muse Charm that can be used with Muse.
Activist investor Starboard Value has taken a large stake in building materials and engineering services company Knife River, and the stock rose 5% after the news was announced. According to reports, Starboard Value wants Knife River to improve margins or consider selling the company entirely.
Shares of data storage management company Everpure jumped 6.7% after its analyst meeting released positive signals and preliminary 2028 guidance came in strong. Everpure expects 2028 revenue of $7.0 billion to $7.3 billion, above the $6.19 billion consensus estimate from FactSet analysts; its non-GAAP operating profit guidance also exceeded market expectations.
Gold mining stocks weakened along with gold prices. Kinross Gold fell nearly 4%; Newmont Mining and IAG both fell about 1%.
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