Global stocks set for biggest weekly fall since mid-July as bond yields, oil stay high

Global stocks are poised for their largest weekly decline since mid-July, as bond yields and oil prices remain elevated. The Nikkei index decreased by 0.3%, resulting in a nearly 4% loss for the week, which is on track to be the steepest weekly drop since mid-July. In London, global stocks faced significant pressure due to the strain in bond markets and Gulf diplomatic deadlock, leading to a surge in oil prices to one-month highs and heightened inflation concerns.

US Treasury yields have resumed their upward trajectory, with Treasury Secretary Scott Bessent hinting at potential further increases in the government's purchases of Treasuries and fiscal consolidation. Analysts are skeptical about finding sufficient spending cuts to reduce the budget deficit, which stands at over 6% of gross domestic product, as interest charges alone this year amount to $1.2 trillion, and the national debt has surpassed $40 trillion.

The US dollar is retreating towards three-month lows, dropping almost 1% this week against other major currencies. The 10-year US Treasury yield is at 4.71%, approaching the 5.30% threshold considered a critical point for the Treasury market. As higher yields increase debt costs globally and challenge stock valuations, the strain is evident in the Nikkei, which dropped 0.3%, leading to losses for the week, on track for the biggest weekly decline since mid-July.