Zürcher Nachrichten - Investors on edge as energy costs, surging bond yields roil markets

All eyes are on US consumer prices later Friday that could see the Federal Reserve raise rates as soon as next week, a move increasingly expected by investors after strong producer inflation data this week.

It comes a day after the European Central Bank raised eurozone borrowing costs, citing the impact on energy costs from the US-Iran war that escalated sharply in recent days.

While oil prices retreated Friday, they remain at levels deemed far too high by central banks hoping to keep inflation pressures from becoming entrenched in the wider economy.

Brent oil almost touched $110 per barrel on Friday, its highest level since May, but fell back after the International Energy Agency slashed its forecast for global oil demand this year, citing the recent escalation in the Mideast war and resurgent energy prices.

Asian stock slumped across the board in the wake of heavy selling Thursday on Wall Street, with AI and other heavily-indebted tech stocks hit as bond yields soared.

European markets managed to rally after this week's selling, though analysts cautioned that soaring bond yields were capping the gains.

The 10-year US Treasury bond in particular -- which determines borrowing costs for everything from mortgages to car loans in the world's biggest economy -- neared the psychological threshold of five percent.

"$100 and 5%: The two numbers that frighten Wall Street," resumed analysts at French brokerage Aurel, after the US oil benchmark West Texas Intermediate joined Brent above $100 on Thursday.

"The market is now pricing at around 70 percent the likelihood of at least a quarter-point increase by the US central bank next week," they wrote.

That would put Fed chairman Kevin Warsh on a collision course with President Donald Trump, who berated policy makers recently for not lowering rates, saying they were justified by strong US growth.

"It's been a rough week for stocks and more so for bonds," said Neil Wilson, investor strategist at Saxo UK.

Bond yields for major economies from Japan to Europe and the US are now at levels last seen during the 2007-08 global financial crisis -- a sign that investors worry governments will not curb spending enough even as deficits and debt levels soar.

The 30-year Treasury yield reached 5.36 percent, a new post-2007 peak, while the 10-year yield is near a 19-year high.

"When real long-term yields rise above potential growth for long enough, the arithmetic becomes progressively less forgiving," said Florian Ielpo, head of macroeconomic research at the Swiss bank Lombard Odier.

"Housing affordability deteriorates, investment hurdles rise, debt-service burdens increase and the economy becomes more sensitive to any additional shock," he said.

- Key figures at around 1045 GMT -

Brent North Sea Crude: DOWN 3.5 percent at $103.82 per barrel

West Texas Intermediate: DOWN 3.2 percent at $99.18 per barrel

London - FTSE 100: UP 0.5 percent at 10,659.87 points

Paris - CAC 40: UP 0.6 percent at 8,166.01

Frankfurt - DAX: UP 0.7 percent at 25,530.71

Tokyo - Nikkei 225: DOWN 1.9 percent at 64,011.34 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 24,805.63 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,888.11 (close)

New York - Dow: DOWN 0.6 percent at 52,064.10 (close)

Euro/dollar: DOWN at $1.1595 from $1.1609 on Thursday

Pound/dollar: DOWN at $1.3507 from $1.3510

Euro/pound: DOWN at 85.85 pence from 85.94 pence

Dollar/yen: DOWN at 154.12 yen from 154.34 yen

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E.Leuenberger--NZN