Global markets are on edge, with U.S. stock futures showing slight gains while Asia-Pacific markets declined, all eyes on Friday’s pivotal consumer price index (CPI) report that will influence the Federal Reserve’s interest rate decision. Surging oil prices due to escalating Middle East tensions and rising Treasury yields are contributing to market caution, though European stocks opened higher following a robust UK GDP report.
Global stock futures saw minimal movement early Friday as investors keenly awaited the release of August's crucial consumer price index (CPI) report. This pivotal economic data point is expected to heavily influence the Federal Reserve's upcoming interest rate decision.
U.S. stock futures displayed only marginal gains; S&P 500 futures edged up 0.19%, Dow Jones Industrial Average futures climbed 151 points, and Nasdaq 100 futures were up less than 0.1%. This came after a challenging Thursday session where the Dow fell over 300 points (0.6%), the S&P 500 lost 0.6%, and the Nasdaq Composite slipped 0.7%, marking the fourth consecutive day of losses for all three major averages. For the week, the Dow is set for a 2.5% decline, while the S&P 500 and Nasdaq are both projected to lose 1.6%.
Markets in Asia-Pacific largely retreated, with South Korean equities leading the slump as the Kospi index dropped 2.8%. Japan's Nikkei 225 declined 2.6%, Hong Kong's Hang Seng Index was down 1.4%, and mainland China's CSI 300 slipped 0.9%. Australia's S&P/ASX 200 also ended 1% lower.
Pressure on Thursday stemmed from surging oil prices, with West Texas Intermediate crude futures breaching $100 per barrel. Both U.S. oil and international Brent crude futures hit their highest settlement prices since May 19, fueled by a seven-month escalation in the conflict between the U.S. and Iran. This surge in oil prices correlated with a spike in rates, as the 10-year note yield surpassed 4.95%, reaching its highest level since October 2023.
Traders also digested August's producer price index (PPI), a key measure of wholesale inflation, which rose 0.4% monthly and 5.4% annually. All attention is now fixed on Friday's consumer price index (CPI) reading for August. Economists polled by Dow Jones forecast a 0.4% monthly increase and a 3.4% annual rate. This report is critical for the Federal Reserve's September 16 interest rate decision, with CME Group's FedWatch tool indicating approximately a 71% likelihood of a rate hike. Christopher Hodge, chief economist of the U.S. at Natixis CIB Americas, highlighted the report's significance: “A reading in line with consensus would represent the fourth consecutive month of encouraging inflation readings and ease pressure for a hike by the Fed in September. If inflation comes in hotter than consensus, we expect a hike at next week’s meeting.”
European stock markets start Friday's session in the green
In contrast to Asia, European stocks commenced Friday's session positively. The pan-European Stoxx 600 gained 0.31% in early trade, with travel and leisure, banking, and autos and parts sectors leading the charge. Italy's FTSE MIB advanced 0.82%, France's CAC 40 rose 0.59%, and Germany's DAX climbed 0.41%. The U.K.'s FTSE 100 also edged marginally higher.
Sterling rises, gilt yields fall after UK GDP beat
The British pound strengthened by 0.12% against both the U.S. dollar and the euro in early London trading, following the U.K.'s unexpectedly strong gross domestic product (GDP) figures. Concurrently, yields on U.K. government bonds (gilts) decreased across the board, bucking the global trend of rising borrowing costs.
George Vessey, lead FX and macro strategist at Convera, noted the tension this creates for sterling: “Stronger growth helps justify the market’s relatively hawkish Bank of England expectations and offers near-term support to the pound. However, if elevated borrowing costs continue to erode fiscal headroom ahead of October’s Autumn Budget, the bond market story could eventually spill over into a currency story.”
UK economy grew 1.6% in year to July, beating expectations
Preliminary data confirmed the U.K. economy expanded more rapidly than anticipated in July. Gross domestic product (GDP) increased by 1.6% year-on-year, surpassing Reuters economists' forecast of 1.2%. Monthly GDP growth was 0.4%, beating the 0% consensus and following 0.3% growth in June. The services sector was the primary driver of this robust growth, according to the Office for National Statistics.
10-year Treasury yield nears 5% as sell-off deepens
The 10-year Treasury yield pushed closer to 5% on Friday, rising about 1 basis point to 4.955%. The 30-year yield also edged higher to 5.362%. This persistent bond market sell-off is attributed to inflation risks, heavy supply, and uncertainty regarding Federal Reserve policy. BMO Capital Markets' Ian Lyngen commented on Treasury Secretary Scott Bessent's informal "line-in-the-sand" at 5.30% for the 30-year yield, suggesting the government's buyback program has been disappointing in containing outright yields. The sell-off is further fueled by robust corporate issuance, strong U.S. employment data, and escalating fiscal concerns.
Oil extends gains amid worries over supply disruptions as Mideast tensions escalate
Oil prices continued their ascent on Friday, following Thursday's breach of $100 per barrel, driven by mounting concerns over supply disruptions due to intensified conflict in the Middle East. Brent crude futures for November delivery gained 0.54% to $108.21 a barrel, while U.S. West Texas Intermediate futures for October advanced 0.47% to $102.96 per barrel. Reports from Al Jazeera detailed Iran's Islamic Revolutionary Guard Corps claiming a strike on a U.S. unmanned vessel in the Strait of Hormuz. Additionally, the United Kingdom Maritime Trade Operations Centre reported projectiles hitting two vessels off Oman, and news of Houthis capturing the strategic port city of Mocha in Yemen further exacerbated market sentiment. Daniel Takieddine, co-founder and CEO at Sky Links Capital Group, warned that any further deterioration could tighten the physical market and extend the price advance.
Chinese Nvidia rival Enflame soars 206% on stock market debut as AI demand stays hot
Chinese chipmaker Enflame, a company developing domestic alternatives to U.S. giants like Nvidia, experienced a spectacular debut on the Shanghai stock market, with shares soaring 206%. Backed by tech giant Tencent, Enflame saw immense demand, with its retail offering oversubscribed by more than 6,000 times. Enflame is the last of China's "four little dragons" of AI chipmaking to go public, all of which have seen significant post-IPO gains.
Bessent says ‘a large bank’ will be sanctioned on Monday as U.S. piles economic pressure on Iran
U.S. Treasury Secretary Scott Bessent announced on Thursday that "a large bank" would be sanctioned next week, specifically on Monday, September 11, to commemorate the memory of fallen citizens. Bessent did not name the institution or country but referenced previous sanctions against the Dubai branches of Egypt’s second-largest bank and the impending closure of Turkey’s largest bank, both for dealings with Iran. These actions are part of the U.S.'s ongoing economic pressure campaign against Iran.
Oracle reports stronger-than-expected quarterly results
Oracle shares jumped over 4% after the company exceeded Wall Street's revenue and earnings per share expectations for its first quarter. The software giant reported adjusted earnings of $1.92 per share on revenues of $19.35 billion, outperforming LSEG consensus estimates of $1.74 per share and $19.14 billion. The company's finance chief confirmed full-year capital spending guidance remains unchanged.
Stocks making the biggest moves after hours
In extended trading, several companies saw significant stock movements following their latest earnings reports. Oracle surged 6% after beating fiscal first-quarter estimates. Conversely, Adobe slid 2% after its current-quarter guidance was largely in line with analyst expectations, forecasting adjusted earnings of $6.30 to $6.35 per share and revenue between $6.80 billion and $6.85 billion. Read more about these movers here.
