The global stock market rally has been interrupted. International oil prices jumped more than 2% amid renewed Middle East tensions, driving inflation expectations higher and quickly cooling investor optimism over global equities that had just approached record highs, while US Treasury yields rose in tandem.
Brent crude rose about 2.5% on Thursday, breaking through the $102 per barrel mark. At the same time, a new round of large-scale borrowing plans by AI giants shook market confidence. As a result, the US 10-year Treasury yield climbed 3 basis points to 5.31%, approaching its highest level since 2002; the MSCI World Index fell 0.2%, moving further away from its previously near-record peak. Asian stocks followed Wall Street's Wednesday decline, dropping 1.2% overall, with Japan's Nikkei 225 closing down 1.4% and South Korea's KOSPI plunging 2.6%.
Previously, the market widely bet that strong corporate earnings would absorb the pressure of high interest rates, but the dual rise in oil prices and inflation is re-examining this logic. US stock index futures briefly turned positive in early trading before falling back 0.1%, and European stocks are also expected to open lower.
The Nikkei 225 closed down 1.4% at 69,042.11 points. Japan's Topix index closed down 1.5% at 4,091.46 points. South Korea's KOSPI closed down 2.6% at 6,625.93 points.
The yen fell 0.1% to 158.26 per dollar.
The US 10-year Treasury yield rose 3 basis points to 5.31%.
Japan's 10-year yield fell 2.5 basis points to 3.080%.
Spot gold rose 0.4% to $4,126.06 per ounce.
Brent crude rose about 2.5% on Thursday, breaking through the $102 per barrel mark.
WTI crude rose 3.0% intraday, breaking through the $91 per barrel mark to $91.02 per barrel.
Bitcoin fell 0.6% to $82,848.73.
Middle East Tensions Drive Oil Prices Higher
The direct trigger for the oil price surge came from multiple geopolitical developments. According to reports, the White House has asked the Pentagon to draft strike plans against Iran, which could be implemented before the midterm elections. Meanwhile, Houthi forces attacked two airports in Saudi Arabia, killing 3 people, as the group continues to escalate its attacks on Saudi Arabia and remains engaged in fighting with Riyadh-backed forces in Yemen. In addition, a storm also disrupted some domestic US crude production.
The oil price spike has also driven up shipping costs. Charter rates for very large crude carriers have risen to new highs, significantly increasing costs across all segments of the oil supply chain. Bloomberg strategist Mark Cranfield said that Brent futures breaking through $102 is worsening sentiment in Asian markets and spreading to US Treasury futures. "If this negative shock transmits to French government bonds, the situation could become quite chaotic once European traders fully enter the market."
Fed Rate Hike Cycle May Not Be Over
The impact of high oil prices combined with Federal Reserve policy pressure has significantly intensified market concerns about the inflation outlook. The Fed unanimously approved a 25 basis point increase in its benchmark rate last month, the first hike since July 2023, citing signs of renewed economic strength.
David Russell of TradeStation believes the probability of another rate hike this year is quite high. "The current policy stance is not very restrictive, and with inflation above target and most economic activity indicators still strong, price stability is the Fed's overriding mission."
US stocks had previously climbed to record highs despite the dual pressures of high rates and high oil prices, but the earnings season officially starting next week will bring a more severe test—the market will examine whether the hundreds of billions of dollars invested in AI infrastructure can translate into corresponding profit returns.
European Fiscal Concerns Emerge, France Becomes Market Focus
In Europe, France's fiscal situation continues to face pressure, putting the eurozone under its most difficult sovereign debt market stress since the European debt crisis. The French Finance Ministry said it will not adjust its current bond issuance strategy, but this statement failed to calm market concerns.
Sean Keane, chief strategist for Asia-Pacific at JB Drax Honore, said that until officials provide a strong enough response to turn the situation around, the market will continue to push up the spread between French and German government bonds, which requires coordination between Berlin and Brussels. "France has entered everyone's field of vision, and Europe is widely seen as facing a series of difficult problems, while both institutional will and collective response capacity appear inadequate."
Meanwhile, the euro stabilized slightly against the dollar, while the dollar index extended Wednesday's 0.3% gain, continuing to receive support from safe-haven flows.
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