Stocks Decline as Oil Rally Fans Inflation Fears:
September set to be worst month for global stocks in a year
Oil extends one-year high amid declining US crude stockpiles
Shares in Asia slumped while US equity futures and Treasuries showed signs of stability just as higher oil prices emboldened the higher-for-longer narrative, adding further pressure on global markets.
The US benchmark oil price hit $95 a barrel for the first time in more than a year after stockpiles fell at a major storage hub. The increase added to concerns that inflation would remain elevated, keeping the 10-year Treasury yield near the 4.6% it reached in the previous session, the highest since 2007.
US and European equity futures were marginally higher while shares in Asia struggled to evade further losses. Equity benchmarks in Japan, New Zealand and Hong Kong fell more than 1%, dragging down a key index of regional shares.
A widely-watched measure of global equities is poised to notch its tenth consecutive loss, which will match its worst losing streak in a dozen years.
“The market now needs to adjust to higher funding costs, higher duration risk,” Koon How Heng, head of market strategy for United Overseas Bank, said on Bloomberg Television. “The key uncertainty that now complicates matters is of course crude oil prices.”
September has reasserted its tough reputation. It’s shaping up as the worst month for global stocks in a year and the worst for global bonds since February. The 10-year Treasury yield has jumped by the most since September last year and US corporate bonds now sit in negative territory for 2023.
In China, mainland shares edged lower ahead of an extended break for onshore markets, which will close Friday before reopening Oct. 9. Chinese developers extended losses after falling to levels not seen since 2011 on Wednesday. Trading in China Evergrande Group was suspended in Hong Kong and bondholders of Country Garden Holdings Co Ltd said they had yet to be paid a coupon due Wednesday.
The Bloomberg dollar index inched lower after touching the highest level since November. The index had climbed for six sessions in a row, its longest run of advances in a year. Meanwhile, the yen strengthened slightly on Thursday but remained near 150 per dollar.
Japan’s 20-year yield rose to the highest since 2014, while Australian and New Zealand rates also gained.
Neel Kashkari, Minneapolis Federal Reserve President, said a potential US government shutdown and the effects of the autoworker strike may slow the economy, requiring less aggressive moves from the central bank.
“If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2%,” Kashkari said in an interview on CNN.
Fed Chair Jerome Powell and a handful of other central bank officials are set to speak later Thursday. Data on the docket for release include US gross domestic product and initial jobless claims ahead of the personal consumption expenditures price on Friday, the Fed’s preferred inflation gauge.
Global stocks also face the risk of further selling linked to a large options position held by a JPMorgan Chase & Co. equity fund. Tens of thousands of protective put contracts held by the fund will expire Friday at a strike price not far below the current level of the S&P 500, creating the potential for market dislocations.
Elsewhere, gold was little changed after a run of declines this week while Bitcoin traded above $26,000.