Morning Bid: Bonds out, robots in

U.S. bond markets eased some on Tuesday, yet equity markets remained subdued, with a tense atmosphere as the Treasury prepares to issue 20-year debt later in the week. Investors will also scrutinize minutes from the Federal Reserve's mixed July meeting, potentially clarifying the central bank's stance on persistently high inflation.

However, before delving into those details, one should consider a recent column exploring the difficulty of diversifying from AI and other technologies. Additionally, tune into the latest episode of the Morning Bid podcast, where Reuters journalists dissect the most significant market and finance news daily.

U.S. yields have been hovering near multi-decade peaks, but a recent report showing lower-than-expected industrial production offered some respite. Nevertheless, speculation persists about the factors causing these record borrowing costs, especially considering that markets now expect fewer Fed rate hikes compared to a few weeks ago.

Experts believe inflation worries are only a piece of the puzzle, as long-term inflation expectations remain stable. Instead, they attribute the high demand for long-term bonds to the increasing "term premium" investors demand to offset uncertainties around borrowing costs and debt sustainability. This premium is at its highest in a decade.

Meanwhile, crude oil prices have not eased, even with recent tensions in the Iran conflict. The real concern now lies in the refined product markets, particularly diesel and home heating fuels. With global refining capacity under stress, the "crack spread" between crude and diesel futures has reached a record high, indicating that households and businesses may face higher fuel costs ahead of winter.

On a positive note, U.S.-Canada trade relations saw a glimmer of hope, as President Trump temporarily halted planned tariff hikes on Canadian goods for three days, signaling progress in ongoing discussions. In China, the excitement surrounding AI continued to surge, with humanoid robot maker Unitree experiencing a massive 600% stock increase following its market debut.

Despite competition from Hyundai-owned Boston Dynamics and Tesla, Unitree's innovative robots, capable of running, dancing, and performing martial arts, have attracted global attention. Backed by influential Chinese tech firms, Unitree's IPO valued the company at an estimated $50 billion. However, China's market is also witnessing the launch of several other humanoid robotics firms.