Global stocks and bonds were sold off on Friday as concerns over a lasting inflationary impact from the Middle East conflict led traders to anticipate higher US interest rates.
How inform FT, S&P 500 dropped 1 percent, and the Nasdaq Composite fell by 1.4 percent. The 10-year Treasury yield, which moves inversely to the price, jumped 0.1 percentage points to 4.56 percent, marking its highest level in nearly a year.
Fears of a global oil supply shortage have been growing as the Strait of Hormuz remains closed, with little progress in negotiations between the two sides. Following a meeting between US President Donald Trump and Chinese leader Xi Jinping this week, there was no sign from Beijing of assistance to the US in its efforts to reopen the crucial shipping corridor.
“There was some expectation that the Beijing summit would bring some kind of resolution to the Iran war and help reopen the strait,” said Emmanuel Cau, head of European equities strategy at Barclays. There was “disappointment” among investors that the summit had not made more progress in the Middle East, he added.
“It’s all about oil now,” Cau said. “If oil doesn’t fall, the market cannot rise.”
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Oil prices rose again on Friday, with the international benchmark Brent crude up 2.5 percent at $108.31 a barrel.
Fears of higher inflation have led to increased expectations for an interest rate rise by the Federal Reserve. Traders in swaps markets are now fully anticipating one rate rise by March next year, with a more than 50 percent chance of an interest rate increase before the end of 2026.
At the start of the week, traders in swaps markets were roughly evenly split on whether rates would rise in the next 12 months.
The 30-year yield — which is more sensitive to long-term inflation expectations — rose 0.09 percentage points to 5.1 percent. With long-term borrowing costs creeping higher in recent weeks, the US government this week sold 30-year debt at a 5 percent yield for the first time since 2007.
A series of inflation data releases this week has also intensified fears that the war in Iran has triggered a new surge in inflation.
The US consumer price index rose to a higher than expected 3.8 percent in April, as shown by data on Monday. Later in the week, the producer price index revealed that wholesale inflation prices had jumped to 6 percent, the highest level since 2022.
This week’s figures “suggest we need to pay more attention to the inflation risks,” said Jordan Rochester, head of fixed income strategy for Emea at Mizuho.
The Stoxx Europe 600 was down 1.56 percent, and Germany’s Dax fell by 1.9 percent.
European government bonds also sold off. The 10-year Bund yield in Germany rose 0.09 percentage points to 3.14 percent.
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