Market Overview
Global bond yields continued their upward trajectory, reaching multi-year highs, while elevated oil prices further tightened financial conditions and broadly weighed on equity markets. Despite these headwinds, European stocks opened higher, though some European oil companies initially edged lower. Japan’s Nikkei 225 bucked the broader trend with a solid gain, while the Australian sharemarket closed lower, consistent with the pressure from rising yields and oil.
US borrowing costs, in particular, touched multi-decade highs, reflecting persistently high energy prices driven by geopolitical risks, hawkish comments from Federal Reserve Governor Michael Barr, and signs of US economic strength. Brent crude, while trading lower at the time of writing, had previously surged above $US107 a barrel due to escalating tensions.
Markets
The S&P/ASX 200 (^AXJO) closed 0.43% lower at 8,665.00, marking its fourth consecutive week of losses with a 0.77% weekly decline.
In Asia, Japan’s Nikkei 225 (^N225) ended the session higher, gaining 1.30% to 66,364.20. Hong Kong’s Hang Seng index (^HSI) finished down 1.01% at 24,510.09. Markets in mainland China and South Korea were closed for a holiday.
Shares listed in Europe were broadly higher, with the pan-European Stoxx 600 reportedly up almost 0.7% shortly after the opening bell.
Overnight, US equity futures were little changed early Friday. In Thursday’s regular trading, the S&P 500 (^GSPC) dipped 0.02% at 7,704.13, while the Nasdaq Composite (^IXIC) eked out a marginal gain, up 0.01% at 26,939.37. The Dow Jones Industrial Average (^DJI) dipped 0.31% to 51,349.98, heading for its fourth consecutive losing week.
In commodity markets, Brent crude (BZ=F) was seen trading at 99.39, down 6.76%, after previously jumping above $US107 a barrel.
Bond markets saw significant moves. The 10-year US Treasury yield (^TNX) stood at 5.162%, up 4.80 basis points, reaching its highest level since 2007. The 30-year US Treasury yield (^TYX) was at 5.461%, up 6.00 basis points, its highest level since 2004. The 10-year yield logged its biggest two-day climb since President Donald Trump rolled out his sweeping “Liberation Day” tariffs last year.
What Drove Markets
The central theme continues to be the relentless upward momentum in global bond yields, particularly US Treasuries. This surge was fueled by several factors, including hawkish comments from Federal Reserve Governor Michael Barr and a strong purchasing managers’ report, indicating US economic strength. These developments have rapidly tightened financial conditions. The 30-year fixed rate mortgage also rose to 7.45%, its highest level since 2024, contributing to the broader tightening of credit, as declines in credit card annual percentage rates and auto loan rates have stalled, and mortgage rates reaccelerated.
Oil prices remained elevated due to escalating geopolitical tensions. The Iranian-aligned Houthis attacked Saudi Aramco facilities in the Red Sea, and Saudi Arabia stated it intercepted six ballistic missiles fired by Yemen’s Iran-backed Houthis toward areas including Taif and the Yanbu region on the Red Sea. Yanbu is a major Red Sea export hub, and these incidents revived concerns about Saudi oil infrastructure and export routes. A senior Iranian military official warned that Tehran could broaden the conflict beyond the Persian Gulf if the US or Israel launched further strikes. However, reports of US-Iran talks in New York exploring a phased ceasefire to reopen the Strait of Hormuz in exchange for Washington lifting its economic blockade of Iran provided some tempering, causing a dip in oil prices from earlier highs.
The surge in bond yields and oil prices weighed on equities, particularly rate-sensitive sectors like technology, real estate, and consumer discretionary. In Australia, the technology and materials sectors slipped, while consumer staples gained. Banks face a dilemma: while higher yields can flatter margins, persistently steep borrowing costs inevitably dampen credit growth and raise asset-quality concerns. Despite these global pressures, European stocks opened broadly higher, though European oil stocks initially edged lower.
Stocks to Watch
In the US overnight, Meta Platforms (META) rose 4.50% to 777.59 after revealing a new AI gadget, tempering the impact of bond yields and oil prices on US equities. Costco (COST) posted fiscal fourth-quarter results that topped expectations, though its shares were slightly lower, down 0.91% at 896.48. NVIDIA (NVDA) traded down 0.41% at 224.58, even as Elon Musk stated plans to roughly double the amount of advanced Nvidia chips used by the Colossus 2 data center by the end of 2026. He specified an additional 220,000 GB300 chips are coming online next week, another 220,000 in November, and potentially a further 220,000 by late December, on top of the current 110,000 GB200 and 440,000 GB300.
In Australia, the banking sector saw gains with ANZ (ANZ.AX) up 1.10% at 37.84, Westpac (WBC.AX) rising 1.05% to 34.49, NAB (NAB.AX) climbing 1.02% to 38.54, and CBA (CBA.AX) up 0.57% at 150.83. Conversely, the materials sector saw BHP (BHP.AX) decline 0.49% to 60.72 and Rio Tinto (RIO.AX) drop 0.97% to 164.85. Woolworths (WOW.AX), a consumer staple, gained 0.52% to 38.47.
Though European oil stocks, including Shell (SHEL.L), initially edged lower early Friday, Shell was later trading up 1.38% at 3,629.50.