(May 5): Bond yields rose on Tuesday after the US and Iran exchanged fire, heightening Middle East tensions and stoking inflation concerns. The dollar strengthened.
Yields on the 10-year New Zealand government bond rose three basis points to 4.69% on worries over higher oil prices. Yields on similar maturity debt in Australia climbed above 5%, hours before a rate decision by the Reserve Bank of Australia. Economists overwhelmingly expect the central bank to raise the cash rate.
Asia followed the US session, where Treasuries fell across the curve, pushing 30-year yields to 5%, the highest since July. Traders boosted wagers that the US Federal Reserve (Fed) will have to reverse course and raise interest rates to curb inflation following a surge in oil prices. There will be no cash trading in Treasuries during Asian hours due to a holiday in Japan.
Brent, the global crude oil benchmark, held some of its 5.8% jump in the previous session amid escalating tensions in the Middle East and the effective closure of the Strait of Hormuz. The comodity fell 1.3% to trade just under US$113 ($144.29) a barrel on Tuesday.
Renewed tensions threaten to inject fresh volatility into markets after a month-long rally that helped global equities erase war-related losses and climb to record highs on strong earnings from megacap technology companies. Investors remain focused on the Strait of Hormuz, a key waterway that has been blocked for months, keeping energy prices elevated and risking higher inflation and slower economic growth.
See also: Stocks waver as carmakers fall, crude oil rises
“Even if the immediate conflict de-escalates, we expect the aftershocks will remain with us for some time,” said Darrell Cronk at Wells Fargo Investment Institute. “The effects — on energy prices, industrial activity, and geopolitical risk premia — are unlikely to fade quickly.”
In other corners of the market, the dollar strengthened against most of its Group-of-10 peers. Gold edged up 0.3% to around US$4,540 an ounce, while bitcoin advanced to around US$80,500.
Futures for the S&P 500 edged up 0.1% after the underlying index pulled back from a record on Monday. Asian shares slipped 0.4%, easing from their all-time high close, with markets in mainland China, Japan and South Korea shut for holidays.
See also: Stocks steady on earnings boost as oil erases jump
“Asian markets are likely to trade with a cautious bias,” said Ritesh Ganeriwal, the head of investment at Syfe Pte Ltd in Singapore. “This isn’t a full-blown risk-off move yet, but more of a geopolitical wobble that could show up in pockets of Asia — particularly energy-sensitive sectors and foreign exchange,” he said.
The US fought off Iran’s attacks as it facilitated the passage of two vessels through the Strait of Hormuz. Meantime, the United Arab Emirates blamed an Iranian drone strike for a fire at its Fujairah port and issued several missile alerts for the first time since a truce between Washington and Tehran took hold.
The wave of attacks came after a plan announced by US President Donald Trump to help vessels through the critical waterway, with Tehran warning it would strike US forces if they came near Hormuz. Iran will be “blown off the face of the Earth” if it targets American ships in the region, Trump told Fox News.
Elsewhere, Federal Reserve Bank of New York president John Williams said interest rates will need to come down “at some point” if inflation returns to the US central bank’s 2% target, as he expects.
The Fed left its benchmark interest rate unchanged last week, though three officials dissented against the “easing bias” in the central bank’s post-meeting statement, favouring language signalling the next rate move could be either a hike or a cut.
Corporate highlights:
- Palantir Technologies Inc raised its revenue outlook for the year and beat analyst forecasts, offering a bullish forecast for a polarising company at the nexus of debates over data, surveillance and artificial intelligence-enabled warfare.
- Grab Holdings Ltd reported first-quarter profit that exceeded analysts’ estimates, helped by resilient demand for ride hailing and delivery in a Southeast Asian market rattled by economic and political challenges.
- Apple Inc has held exploratory discussions about using Intel Corp and Samsung Electronics Co to produce the main processors for its devices, a move that would offer a secondary option beyond longtime partner Taiwan Semiconductor Manufacturing Co.
- Amazon.com Inc unveiled a suite of logistics services that will let businesses buy its existing freight and distribution offerings as a package, sending shares of rival delivery companies such as FedEx Corp and United Parcel Service Inc lower.
- A start-up backed by General Catalyst Partners agreed to acquire Global Business Travel Group Inc, the travel platform spun out of American Express Co, in a deal worth about US$6.3 billion.
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Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 11.56am Tokyo time on Tuesday
- Australia’s S&P/ASX 200 fell 0.6%
- Hong Kong’s Hang Seng fell 1%
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1688
- The Japanese yen was little changed at 157.22 per dollar
- The offshore yuan was little changed at 6.8311 per dollar
Cryptocurrencies
- Bitcoin rose 0.8% to US$80,536.95
- Ether rose 0.7% to US$2,365.92
Bonds
- Australia’s 10-year yield advanced one basis point to 4.99%
Commodities
- West Texas Intermediate crude fell 2.1% to US$104.16 a barrel
- Spot gold rose 0.4% to US$4,541.03 an ounce
Uploaded by Tham Yek Lee
