Global markets are grappling with escalating tensions in the Middle East, influencing a series of reactions across various asset classes on Thursday. Investors are seeking refuge in gold, which hit an August 1st high, as oil prices also surge due to the Israel-Hamas conflict and fears of inflation. Meanwhile, the U.S. dollar remained steady against other major currencies, underpinned by the U.S. 10-year yield nearing the significant 5% mark.
Asia-Pacific markets, including Japan's Nikkei and China's CSI 300, followed European and Wall Street sell-offs. Government bond prices have fallen, pushing the yield on 10-year US government bonds to a 2007 high. Diversitas noted that US treasury yields have reached a 16-year high for the 10-year yield and crossed the 5% mark for the first time since 2006 for the 30-year yield.
Amid these tensions, US President Joe Biden had scheduled meetings with Arab leaders but was forced to cancel due to an explosion at Gaza's al-Ahli Arab hospital. Despite this setback, Israeli PM Benjamin Netanyahu pledged aid into Gaza via Egypt.
The geopolitical tensions are causing concern among analysts. Jefferies' Mohit Kumar warned of higher real yields and geopolitical risks while Standard & Poor’s expressed fears that the crisis could trigger an inflationary shock and slow global growth if it escalates further.
In currency news, the dollar index remained stable at 106.5 after a 0.33% increase on Wednesday. The Australian and New Zealand dollars, sensitive to global growth swings, dropped up to 0.6%, while the British pound and euro also dipped but stayed close to multi-month lows.
MUFG's Lee Hardman highlighted how the yield spike has affected risk sentiment, causing a sell-off in global equity markets and influencing FX markets, especially high-beta commodity currencies. Both long and short-dated U.S. yields hit 16-year highs on Thursday, with the 10-year yield nearing a crucial 5%.
In Japan, the weak yen is causing concern, with its top currency diplomat suggesting non-intervention would be preferable. The dollar was last at 149.82 yen, closing in on the critical 150 yen level that previously triggered a sudden yen surge.
Key events today include the Bank of Indonesia's adjustment of interest rates, Federal Reserve chair Jerome Powell's speech at the Economic Club of New York, and the release of US weekly jobless claims data. Additionally, UK’s Prime Minister is expected to visit the Middle East for peace efforts.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.