Key facts
- European stocks and the euro declined on Wednesday.
- Oil prices rose above $100 per barrel due to Middle East tensions and storm concerns.
- French bond yields widened against German Bunds amid fiscal concerns.
- Investors are watching US Treasury auctions and Fed meeting minutes.
- Traders scaled back expectations of a Fed rate increase this month.
- Spot gold fell 0.6% to $4,135.28 per ounce.
European stocks and the euro dropped on Wednesday as oil prices rose above $100 per barrel amid renewed Middle East tensions and supply constraints from a storm heading for US oil-producing regions. Attacks by Yemen's Iran-backed Houthis on Saudi Arabia also contributed to the market's concerns.
The MSCI's main world stocks index fell 0.28%, while Europe's STOXX 600 was down 0.45%. Nasdaq futures fell 0.11% while S&P 500 futures were roughly unchanged. The S&P 500 had hit a fresh record on Tuesday, up about 0.6% on the day, while the tech-heavy Nasdaq gained 0.4% to also mark an all-time high. The Dow Jones Industrial Average rose 0.5%.
In Asia, MSCI's broadest index of Asia-Pacific shares excluding Japan was down 0.5%, led by declines in Hong Kong and Singapore. The index is up 0.9% so far this month.
"In the very early stages of the fourth quarter, typically the best quarter of the year for equity returns, markets are being driven by a confusing ‘stocks up, US breadth down, yields up, oil down and up, and down’ narrative," said Jeremy Batstone-Carr, an economist at Raymond James.
Brent crude rose 1% to $101.58 per barrel. The French yield spread versus safe-haven German Bunds widened to 131 basis points, after narrowing for two days. It had reached almost 160 basis points last week. French bonds have been under pressure as expectations of higher European Central Bank rates and political uncertainty before the 2027 election raise doubts over France's ability to fix its finances.
"The magnitude of the move is striking given the 2027 election remains several months away and France's deteriorating fiscal dynamics are hardly new," said Laura Cooper, Nuveen's head of macro credit and global investment strategist. "What has changed is sharply higher yields, leaving investors less willing to look through those vulnerabilities."
The euro slipped 0.47% to $1.1208, after sliding to a 17-month low against the dollar at $1.1161 earlier this week. Wider yield spreads in the euro area weigh on the single currency by boosting expectations of European Central Bank monetary easing, reviving worries about fiscal sustainability and stoking fears of increasing fragmentation in the euro area.
The yield on the US 10-year Treasury bond was up 3.8 basis points at 5.307%. Market participants will closely watch a 10-year Treasury bond auction later in the day and a 30-year auction on Thursday, which will show the depth of investor demand for US debt. US longer-dated yields hit a 24-year high on Monday amid a persistent selloff since late August due to inflation and the fiscal outlook.
The dollar index, which measures the greenback against a basket of currencies, rose 0.33% to 102.18 following a 0.27% slide in the prior session. The Japanese yen weakened 0.1% to 158.30 per dollar. Sterling dipped 0.2% to $1.3228.
The Federal Reserve will publish the minutes of its September 15-16 policy meeting, which will be scrutinised for potential rate moves over the next few months. Traders scaled back expectations of a Fed rate increase this month to 19% from about 50% a week earlier. Spot gold was down 0.6% at $4,135.28 per ounce.