S&P 500 futures edged higher on Friday even as a global bond selloff pushed Treasury yields to multi-year highs and oil prices surged on Middle East supply fears. Rising crude added to inflation concerns ahead of the closely watched August CPI report, with markets now pricing about a 70% chance the Federal Reserve raises rates next week.
Higher bond yields raised the discount rates used for corporate valuations, leaving Asian stocks in deep losses on Friday: the MSCI Asia-Pacific index outside Japan lost 1.5% while Japan's Nikkei tumbled 2.2%. S&P 500 futures bounced 0.2% by comparison, with Nasdaq futures little changed and pan-region European stock futures flat.
Oil surge stokes inflation fears
Brent crude hit a four-month high of $109.97 a barrel after a 6% overnight jump, before easing to $107, still on pace for an 11% weekly rise. Oil flows stayed restricted through the Strait of Hormuz as the U.S. and Iran traded attacks, while Iran-aligned Houthis seized Yemen's port of Mocha, threatening Saudi oil exports in the Red Sea.
According to Reuters: "Maritime traffic through the Bab el-Mandeb is gravely imperiled by the Houthi advances", said Helima Croft, head of global commodity strategy at RBC Capital Markets, who flagged Brent could reach $121.99 a barrel later this year if a full-blown Saudi-Houthi war resumes. President Trump's comments that the conflict could last beyond the November midterm elections added to the unease.
Bond yields near 5% as buyback falls short
The 10-year Treasury yield climbed as much as 3 basis points to 4.9790%, its highest in three years and just shy of 5%. The 30-year yield scaled a 19-year high of 5.3836%, while two-year yields surged 12 basis points overnight to a 14-month peak of 4.5961%. The rout came partly because a Treasury buyback programme fell short of the expected $6 billion value.
Central banks lean toward more hikes
JPMorgan analysts now expect eight of nine developed-market central banks — including the Fed, the Bank of Japan and all four European central banks — to raise rates by year end. The ECB already hiked rates to 2.5% on Thursday, citing risks to the upside for inflation and to the downside for growth. A Dow Jones forecast points to a 0.4% monthly rise in August CPI, pushing the annual rate to 3.4% and giving the Fed its last major data point before next week's meeting.
Sources: Investing.com, CNBC
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