Oil surge lifts yields as rate hike expectations strengthen

US equities fell on Thursday as surging oil prices pushed Treasury yields higher, increased borrowing costs and heightened concerns about corporate margins. The S&P 500 declined 0.60%, the Dow fell 0.40% and the Nasdaq 100 lost 1.10%. Producer prices rose 0.40% month on month in August, partly reflecting higher energy costs, while expectations of a Federal Reserve rate hike next week strengthened. The dollar index rose to 99, with the implied probability of a 25-basis-point increase climbing to 70% from 60% previously. Core PPI increased by 0.20%, below both the previous month’s 0.30% rise and the 0.30% forecast, keeping the upcoming CPI report firmly in focus.

Chipmakers came under pressure as rising long-term borrowing costs weighed on the sector. Nvidia fell 2.30%, while Micron dropped 4.90%, AMD declined 3.40%, and Intel lost 5.60%. Oracle slipped 5.40% ahead of its results, while Meta and Palantir declined 1.40% and 2.20%, respectively. In contrast, Apple gained 3.60%, recovering some of Wednesday’s losses after unveiling several new products, including its foldable iPhone Duo.

European equities also weakened as investors assessed the European Central Bank’s (ECB) decision to raise borrowing costs by 25 bps. The main refinancing rate increased to 2.65% and the deposit rate to 2.50%, while the ECB raised its 2027 and 2028 inflation forecasts. The STOXX 50 and STOXX 600 each fell 0.30%, while the DAX declined 0.84%, the CAC 40 lost 0.42% and the FTSE 100 fell 0.55%. Rising oil and natural gas prices, alongside elevated inflation expectations, added to pressure on markets.

Asian equities were mixed, with the Shanghai Composite falling 0.43% and the Shenzhen Component declining 0.77%, while the Hang Seng lost 1.30%. Japan’s Nikkei 225 and Topix each gained 0.20% as the recent rise in oil prices and bond yields lost some momentum. Investors continued to monitor expectations of further Bank of Japan tightening and the stronger yen.

South African equities fell sharply, with the FTSE/JSE All Share Index declining 1.31% to 114 993.07. Resources fell 2.34% and Metals and Mining declined 2.21%, while Financials lost 1.14%. At 21h04, the rand weakened 1.27% against the dollar to R16.21, trading around its weakest level since late August. It also weakened 1.03% against the pound to R21.91 and 1.12% against the euro to R18.83.

Crude oil rose above $103 a barrel on Thursday, reaching its highest level since 19 May, as escalating geopolitical tensions heightened fears of extended disruptions to global energy supplies. Brent crude gained 6.74% to $108.03 a barrel following renewed hostilities, attacks on Saudi energy infrastructure and concerns about energy flows through the Strait of Hormuz.

Gold declined 1.90% to $4 316.65 an ounce, while silver and platinum fell 5.46% and 6.98%, respectively.