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BLOOMBERG
Oil prices pushed closer to $100 a barrel, stoking expectations interest rates will stay higher for longer and keeping pressure on global markets.
The US benchmark oil price briefly surpassed $95 a barrel for the first time in more than a year and Brent traded near $97 after a drop in stockpiles at a major storage hub underscored a widening global deficit.
The potential feed-through to inflation kept the 10-year Treasury yield around 4.6%, the highest since 2007. The dollar was little changed after its longest run of gains in a year. In Europe, the Stoxx 600 slipped 0.4% and US futures posted modest declines.
“The combination of oil prices bursting and rising rates, that’s of course not good for stock markets,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux.
Hawkish commentary from central banks has dashed hopes for a pivot toward lower rates any time soon, making September the worst month for global stocks in a year and the weakest for global bonds since February.
At the same time, Neel Kashkari, Minneapolis Federal Reserve President, said a potential US government shutdown and the effects of the autoworker strike may slow the economy, requiring less aggressive moves from the central bank.
“If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2%,” Kashkari said in an interview on CNN.
Fed Chair Jerome Powell and a handful of other central bank officials were expected to speak on Thursday. Data due include US gross domestic product and initial jobless claims ahead of the personal consumption expenditures price on Friday, the Fed’s preferred inflation gauge.
Global stocks also face the risk of further selling linked to a large options position held by a JPMorgan Chase & Co equity fund. Tens of thousands of protective put contracts held by the fund will expire on Friday at a strike price not far below the current level of the S&P 500, creating the potential for market dislocations.
In China, mainland shares edged lower ahead of an extended break for onshore markets, which will close on Friday before reopening on October 9. Chinese developers extended losses after falling to levels not seen since 2011.
Trading in China Evergrande Group was suspended in Hong Kong and bondholders of Country Garden Holdings Co Ltd said they had yet to be paid a coupon due on Wednesday.