Key facts
- Asian share indices are on track for weekly declines.
- Global bond market stress and high oil prices are impacting markets.
- U.S. Treasury Secretary Scott Bessent's suggestions of fiscal consolidation were met with skepticism.
- U.S. 30-year Treasury yields reached 5.25% and 10-year yields hit 4.71%.
- Brent crude prices are up over 5% for the week.
- The U.S. dollar has weakened over the week, while gold has risen.
Most Asian share indices are poised for weekly declines as persistent stress in global bond markets and elevated oil prices, driven by Gulf diplomatic deadlock, continue to impact investor sentiment. U.S. Treasury Secretary Scott Bessent's suggestions of fiscal consolidation have been met with skepticism by analysts who believe record debt levels and deficits could make such interventions too costly. Yields on U.S. Treasuries resumed their climb after a brief respite following intervention. Analysts are doubtful that sufficient spending cuts can be found to significantly curb a budget deficit exceeding 6% of GDP, with interest charges alone projected to reach $1.2 trillion this year. Steven Zeng, a strategist at Deutsche Bank, cautioned that markets may resist interventions if they perceive fundamentals like record debt levels to be on their side, potentially eroding Treasury's credibility.
Investors' skepticism is reflected in bond yields, with 30-year yields nudging back up to 5.25% and 10-year yields reaching 4.71%. These higher yields increase global debt costs, impacting companies, particularly tech giants funding AI capital expenditures, and challenging stock valuations.
The strain is evident in markets like the Nikkei, which slipped 0.8%, contributing to a 4.0% weekly loss. While South Korea and Taiwan saw slight gains, they remain down for the week. Chinese blue chips dipped 0.1%, whereas MSCI's broadest index of Asia-Pacific shares outside Japan added 0.6%.
In Europe, futures for the EUROSTOXX 50 and DAX were slightly lower, and FTSE futures dipped 0.1%. On Wall Street, strong corporate earnings have offered some support, with S&P 500 futures up 0.1% and Nasdaq futures gaining 0.2%. The outlook for Nvidia's upcoming earnings report is seen as crucial for the AI trade.
Bessent also elaborated on President Donald Trump's economic stance against Iran, indicating the U.S. would impose stringent sanctions. This further diminished hopes for a deal to fully open the Strait of Hormuz, pushing Brent crude to a one-month high of $94.71 before profit-taking occurred. Brent futures were last down 0.7% at $93.12 a barrel, but still up over 5% for the week, while U.S. crude eased 0.7% to $86.18 a barrel.
In currency markets, the dollar has weakened broadly for the week, influenced by concerns that escalating U.S. debt and policy uncertainties could diminish its purchasing power. This has driven investors towards assets like gold, which remained steady at $4,513 an ounce, up 3.1% for the week. Jonas Goltermann, chief markets economist at Capital Economics, noted renewed pressure on the dollar due to a resurging 'debasement' narrative.