Market Overview
US equities concluded lower for a second consecutive session, pressured by a surge in US Treasury yields, with the 10-year note breaching 5%, and a significant rally in oil prices driven by renewed geopolitical tensions. Investors are now keenly focused on the Federal Reserve’s upcoming policy decision, where a rate hike is broadly anticipated. Despite the negative close across US markets, Australian shares are poised for a higher open. Meanwhile, evolving discussions around AI safety continued to influence the technology sector, though some chipmakers managed to post gains.
Markets
US major indices closed down. The S&P 500 (^GSPC) ended the day at 7,585.73, down 0.45%, while the Dow Jones Industrial Average (^DJI) finished at 52,093.11, a 0.63% decline. The tech-heavy Nasdaq Composite (^IXIC) closed lower by 0.78% at 25,981.57.
Across the Asia-Pacific region, ASX 200 futures were tracking up 31 points, or 0.4 per cent, to 8691, pointing to a higher open for Australian shares.
Global bond markets saw significant movement. The US 10-Year Treasury yield (^TNX) stood at 5.00%, up 3.50 basis points (bp), after reaching as high as 5.04% and 5.041% intraday, its highest since 2007. The US 30-Year Treasury yield (^TYX) also rose 3.50 bp to 5.36%, hitting a new multi-decade high. Australia’s 10-year yield was noted at 5.41%.
In commodities, oil prices surged due to supply concerns. Brent Crude (BZ=F) closed at $108.46 per barrel, up 2.63%, while WTI Crude (CL=F) settled at $105.65 per barrel, gaining 4.20%. Gold (GC=F) eased 0.45% to $4,332.50. Iron ore was up 0.01% to $US95.60 a tonne.
The Australian Dollar (AUDUSD=X) traded at 0.71, down 0.26%. Bitcoin (BTC-USD) saw a decline of 2.90%, standing at 75,895.56, amid news that the US Senate blocked a landmark crypto bill.
What Drove Markets
Surging Bond Yields
US Treasury yields surged, with the 10-year note hitting its highest level since 2007 at 5.04% intraday before pulling back to close at 5.00%. The 30-year yield also reached a new multi-decade high. This rise is attributed to mounting fears of inflation stemming from the ongoing US-Iran war, concerns over US fiscal debt, and hawkish central bank expectations. Barclays strategists observed that the approaching 5% threshold in 10-year yields represents a historically important inflection point where rates typically become a more persistent headwind for equities.
Oil Price Rally
Oil prices extended gains significantly, with Brent crude closing above $108 per barrel and WTI crude settling over $105 per barrel. The rally was fueled by renewed supply disruption jitters after Saudi Arabia shuttered a key pipeline bypassing the Strait of Hormuz. Crude further extended gains after Libya’s National Oil Corporation reported operations were completely halted at three oilfields and could declare force majeure due to a pipeline closure. This surge in oil prices is contributing to inflationary pressures.
Anticipation of Fed Decision
Market participants are keenly focused on the Federal Reserve’s policy decision, expected on Thursday AEST. Fed funds futures trading suggests a 94.5% likelihood of a 25 basis point rate hike from the current target rate range of 3.5% to 3.75%. BMO Wealth Management’s Carol Schleif noted the Fed has “little choice but to hike rates.” Wolfe Research’s Chris Senyek, however, puts the odds of a Fed hike at 50-50, less hawkish than consensus, and noted that a hike could lead to near-term downward pressure on stocks, though the technology sector might recover over a longer horizon of six to twelve months.
AI Safety Concerns and Sector Impact
A growing uproar over AI safety, including calls from Anthropic CEO Dario Amodei and other industry tycoons like Sam Altman and Elon Musk for a slowdown in development, briefly pressured the US S&P 500 technology sector. President Donald Trump, however, called AI safety worries “a hoax” and voiced opposition to AI regulation proposals, a sentiment echoed by China’s Foreign Ministry Spokesperson Guo Jiakun, who called for a joint promotion of the open development of AI. Despite initial pressures, the Philadelphia Semiconductor Index (SOX) bounced back, ticking up 0.4% after Monday’s declines, with some chipmakers gaining. Nvidia’s Jensen Huang stated no new laws are needed for the AI industry, while analysts suggest the AI infrastructure buildout is a secular story that won’t be turned back.
Stocks to Watch
Among individual equities, Advanced Micro Devices (AMD) gained 2.19% to 504.20, and NVIDIA (NVDA) rose 0.57% to 212.17, reflecting the rebound in some chipmakers despite broader tech sector pressures. Conversely, AI hyperscalers such as Alphabet (GOOGL) shed 1.26% to 344.98, Amazon (AMZN) retreated 2.02% to 248.42, Microsoft (MSFT) lost 1.64% to 497.12, and Oracle (ORCL) tumbled 3.07% to 140.35, reportedly due to rising borrowing costs. The Consumer Discretionary (XLY) sector led losses among S&P 500 industry sectors, falling 1.75% to 110.88.