Stocks tumble as oil and inflation fan rate hike bets

Stocks declined sharply on Friday due to the impact of oil prices surging and bond yields reaching multi-year highs. The Middle East crisis, involving the US and Iran, has raised concerns about oil supply. Brent oil prices approached $110 per barrel, its highest level since May, while West Texas Intermediate peaked at over $104.

This escalation in oil prices and inflation expectations has intensified rate hike expectations, prompting central banks to tighten monetary policy further. The 30-year Treasury yield hit a new peak at 5.36 percent, and 10-year yields approached five percent, nearing a 19-year high. The European Central Bank raised interest rates and warned of prolonged inflation, while the Federal Reserve is expected to announce its policy decision next week.

A survey indicated a more than 70% probability that officials will raise interest rates by a quarter point. The producer price index accelerated to 5.4% in August, driven by energy costs, further fueling concerns about rising inflation. As risk assets suffered, riskier stocks in Wall Street shed value, and major global markets across Europe, Asia, and the Pacific also experienced significant declines. Investors remain cautious, anticipating prolonged inflation and geopolitical tensions to persist.