By COMFORT OGBONNA
Asian stocks were on course for weekly losses on Friday as renewed selling in global bond markets pushed government borrowing costs higher, while rising oil prices added to concerns about inflation and the outlook for interest rates.
Investor sentiment remained under pressure as U.S. Treasury yields resumed their climb after a brief pause earlier in the week. The renewed rise in yields reflected continued concerns about the size of the U.S. government’s debt and budget deficit, as well as uncertainty over economic policy.
The yield on the 30-year U.S. Treasury bond climbed back to about 5.25%, while the 10-year yield reached 4.71%. The moves came despite efforts by the Treasury Department to support demand for government debt.
Higher bond yields can have broad consequences for financial markets because they increase borrowing costs for governments and companies while reducing the relative attractiveness of riskier assets such as stocks.
The pressure is particularly significant for technology companies, many of which are spending heavily on artificial intelligence infrastructure and relying on large amounts of capital to finance those investments.
Higher interest rates also increase the discount applied to future corporate earnings, potentially putting pressure on stock valuations, particularly among companies whose share prices depend heavily on expectations of strong future growth.
Japan’s Nikkei index fell 0.8% on Friday, bringing its decline for the week to about 4%.
South Korean and Taiwanese shares posted modest gains during the session but remained lower for the week. Chinese blue-chip stocks also slipped, while a broader index of Asia-Pacific shares outside Japan edged higher.
European markets were also subdued, with futures for major European indexes showing limited movement. U.S. stock futures were slightly higher, supported in part by a strong corporate earnings season.
The continuing rise in oil prices added another concern for investors.
Brent crude briefly reached $94.71 a barrel, its highest level in about a month, before giving up some of those gains. The benchmark was last down about 0.7% at $93.12 a barrel but remained more than 5% higher for the week.
U.S. crude futures also fell about 0.7% to $86.18 a barrel.
Oil prices have been pushed higher by the continuing diplomatic deadlock in the Gulf and concerns over disruptions to shipments through the Strait of Hormuz, a critical route for global energy supplies.
The lack of progress toward reopening the waterway fully has increased concerns about the availability of crude and other energy products.
U.S. officials have also threatened tougher economic measures against Iran, further reducing expectations of an immediate diplomatic resolution.
A prolonged disruption to oil shipments could increase energy costs worldwide and make it more difficult for central banks to bring inflation under control.
The rise in bond yields and oil prices has therefore created a difficult environment for investors. Higher energy costs could push inflation higher at the same time that higher borrowing costs weigh on economic growth and corporate investment.
Currency markets reflected growing concerns about U.S. fiscal conditions and policy uncertainty.
The dollar index was down nearly 0.9% for the week at 98.802 after reaching a three-month low. The euro strengthened about 1% on the week to $1.1686 after touching its highest level in 14 weeks.
The dollar also fell sharply against the Swiss franc, recording its biggest weekly decline since January.
Against the Japanese yen, however, the dollar remained relatively firm at about 159.07 yen per dollar.
Japan’s economic data added another complication for currency and interest-rate markets. Core consumer inflation accelerated in July as companies passed higher import costs on to consumers.
Separate manufacturing data showed a sharp increase in new orders, adding to evidence that economic activity remains resilient.
The stronger inflation and manufacturing figures have increased expectations that the Bank of Japan could raise interest rates at its September meeting.
Markets are already largely pricing in a quarter-point increase that would take the policy rate to 1.25%, but investors are looking for clearer signals that Japanese policymakers are prepared to continue tightening monetary policy.
Gold prices were relatively stable at around $4,513 an ounce but remained about 3.1% higher for the week. The precious metal has benefited from demand for traditional safe-haven assets amid concerns about currency stability, geopolitical tensions and rising government debt.
Analysts said the dollar’s recent weakness was partly linked to renewed concerns about the long-term value of U.S. assets as government debt continues to increase.
While some economists believe those concerns are exaggerated and expect the dollar to strengthen over the longer term, continued policy uncertainty could keep the currency under pressure in the near term.
For investors, the combination of rising bond yields, elevated oil prices, geopolitical tensions and uncertainty over monetary policy is creating a challenging backdrop for global markets.
The direction of Treasury yields and oil prices will remain closely watched as investors assess whether inflationary pressures will persist and how central banks respond.
Original article
Comments