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- US Treasury yields climb to new highs for the year
- Yen remains near 164 level despite firmer inflation reinforcing normalization expectations
- Chinese markets await Politburo signals as the PBOC boosts liquidity support
- Rand extends losses after South Africa Reserve Bank’s surprise hold
- Total emerging market bond issuance increased week over week
Iran Conflict and AI Fears Push Markets Negative for the Week
Inflation fears rose again this week as strikes escalated and the conflict expanded to the Red Sea, while disappointing AI results further suppressed sentiment. Although European and US equities are staging a rally this morning as oil eases slightly, Brent exceeded $100/bbl yesterday and is still up 11% this week. Elevated rhetoric, attacks on shipping by Iran-backed Houthis in the Red Sea, and much wider crack spreads have led some market participants to raise stagflation concerns. Global yields are meaningfully higher, adding to market pressure, with 10yr Treasury and Bund yields up 13 bps and 6 bps, respectively, so far this week. Real yields led most of the increase, with the 10yr US real yield at its highest level since October 2023. Central bank repricing has driven much of the rates recalibration, as markets link renewed energy-price gains to a higher probability of hikes, particularly by the Fed. With the ECB on hold but hawkish and seen as likely to hike in September, markets will look to next week’s FOMC meeting to confirm a hawkish Fed reaction function. Beyond geopolitics and energy shocks, markets had hoped AI results would beat lofty expectations and lift sentiment, but disappointing earnings from Mag7 stalwarts Tesla and Alphabet weighed on equities. Investors are growing more concerned about dwindling free cash flow and additional capex for AI buildouts, though Intel’s strong results late Thursday offered glimmers of hope. On the week, the S&P 500 is down 1.7%, credit spreads are wider, and the dollar is 0.6% stronger.
