Global Market Today: Asian stocks, bonds fall on oil, inflation concern

Asian stocks and bonds faced a decline following a rise in oil prices, leading to a sell-off in US markets. The MSCI Asia Pacific Index dropped 1.3%, with Japan and South Korea experiencing the most losses, after the S&P 500 Index fell 0.5%. Brent crude prices increased by 0.7% and reached near $110 a barrel, driving up Treasury yields to multiyear highs.

Bonds suffered further damage after the Treasury bought back fewer securities than anticipated. Producer-price data that exceeded expectations also increased traders' confidence in an imminent Federal Reserve interest-rate hike.

Some sectors in Asian markets showed resilience, with Oracle Corp. shares rising by about 6% after reporting faster growth in its cloud-computing business than analysts had anticipated. However, the upcoming release of the US consumer price index report will be crucial for assessing risk sentiment, as investors will be monitoring whether higher energy costs are affecting broader price pressures.

A softer reading could potentially reduce bond yields and the rate-hike expectations that have negatively impacted equities, while a surprise increase in prices could further intensify the selling.

Treasury yields rose across the curve on Thursday due to the US government purchasing fewer 10-to-20-year securities than investors expected during Treasury Secretary Scott Bessent's initial expanded buyback operation. The 10-year yield remained steady at 4.96% in early Friday trading, after peaking at 4.97% since late 2023. The US producer price index rose 0.4% in August compared to the previous month, which was the highest since May.

Swaps now indicate a 70% probability of a Federal Reserve rate hike next week, with no expectation of a move by October.

European Central Bank President Christine Lagarde further exacerbated concerns over tightening global monetary policy by stating that inflation in the region would remain significantly above target through 2027. This information, combined with a hot US Producer Price Index print and a hawkish-sounding Lagarde, suggests that a global central bank rate-hike cycle may be imminent, which is not favorable for risk assets at present or in the near future.

The surge in oil prices has added another challenge for central banks, as ongoing conflicts around the Strait of Hormuz threaten to maintain high energy prices. This development could lead to higher energy costs eventually impacting inflation.