Stocks little changed as oil prices pause climb but yields still near highs
July 24 : Global bond yields hovered near multi-decade highs on Friday as high oil prices stemming from the Middle East conflict stoked concerns about inflation and rate hikes, while U.S. and European shares found little relief from this week's lows.
News that the U.S. administration will impose higher tariffs on goods from 60 trading partners also did not help the inflation picture, with 30-year Treasury yields marching towards their highest since 2007 and German 10-year Bund yields - the benchmark for the euro zone - holding close to their highest since 2011.
Wall Street stocks were little changed, with the Dow Jones Industrial Average and the S&P 500 each about 0.1 per cent higher. The Nasdaq Composite fell 0.1 per cent, with a roughly 2 per cent decline for shares of chipmaker Intel despite bumper results.
Tech stocks have been under pressure this week as investors grow increasingly uneasy about multi-billion-dollar spending on AI that has yet to yield conclusive evidence of paying off.
The pan-European STOXX 600 rose 0.6 per cent after a more than 1 per cent drop in the last session, on pace for a mild weekly gain.
Brent crude slipped 2.83 per cent to $97.84 a barrel, after surging 7 per cent overnight to a two-month high of $102. Attacks by Iran-aligned Houthis on Saudi tankers in the Red Sea risk choking off a second crucial Middle East artery for global oil supplies, alongside Iran's near-closure of the Strait of Hormuz.
President Donald Trump threatened "major military punishment" for Iran and its Houthi allies, while the U.S. military conducted a 13th consecutive night of attacks.
"The dollar has been going up for a few days so clearly the risk has been building and the fact that oil has been at these higher levels for several days has really started to work through the cross-asset correlation," said Shaniel Ramjee, co-head of multi-asset investment at Pictet Asset Management in London.
Most major currencies were steady against the dollar on Friday, though the dollar index was on pace for its biggest weekly jump in about a month, driven in large part by growing expectations for the Federal Reserve to raise interest rates.
Markets show traders believe central banks are more likely to raise borrowing costs, with a one-in-three chance of a rate hike from the Fed as soon as next week - a sea change from merely a week ago - while a move in September is more than fully priced in.
The European Central Bank left rates unchanged on Thursday, but a September rate hike is about 70 per cent priced in. Data on Friday offered a more optimistic economic outlook, after surveys of business activity showed Germany's private sector returned to growth in July for the first time in four months and contraction in France's private sector eased this month.
Global tech stocks took a hit earlier this week after Alphabet and Tesla, the first two of the "Magnificent Seven" megacap tech companies to report this season, spooked investors as both burned through cash in their most recent quarter on their big spending on AI infrastructure.
"Valuations in U.S. equities are basically off the roof despite very little cash flow generated by tech and the highest beta part of the market. In general, this is a market where there are (some) bubbly signs," said Gabriele Foà , global credit portfolio manager at Algebris Investments in Milan.
DOLLAR SET FOR STRONG WEEKLY GAINS ON RATE OUTLOOK
In bond markets, the benchmark 10-year U.S. yield hit a more than 18-month high of 4.7135 per cent, and last traded at 4.685 per cent. The yield on 30-year bonds was steady at 5.1616 per cent, not far from a 19-year peak of 5.201 per cent.
"As for the Fed, uncertainty around the outlook for both the policy rate and the balance sheet could weigh on the UST market over the next few months," John Davies, U.S. rates strategist at Standard Chartered Bank wrote in a note on Friday.
"Our base case remains an on-hold Fed, but we see a risk that the long-end might start to question whether Chair Warsh is only ready to ‘talk the talk’ rather than ‘walk the walk’ on delivering price stability."
The yen was pinned near 40-year lows at 163.77 per dollar, drawing warnings from the U.S. Treasury about excess volatility in the currency and from Japan's finance minister.
Precious metals edged higher in choppy trading, with gold up 0.1 per cent at $4,051 an ounce after falling 2 per cent the day before, while silver advanced 0.5 per cent after a decline of 3.4 per cent on Thursday.
