Oil prices have reached one-year highs, fueling concerns about persistently high interest rates and causing investors to seek refuge in the strengthening U.S. dollar. The surge in oil prices has raised worries about fuel demand outpacing production, creating an additional supply-side shock. U.S. crude has risen 3.6% on Wednesday and an additional 1% on Thursday, reaching $95 a barrel for the first time since August 2022. The prospect of higher energy costs and the fear of inflation have also put pressure on longer-dated bonds. As a result, benchmark 10-year Treasury yields have risen by over 50 basis points this month, further impacting the stock market.
The continuous increase in Treasury yields is causing stocks to decline, with equities at risk of further losses even if bonds rebound. The MSCI’s index of global equities could experience its 10th straight daily fall on Thursday, marking a long losing streak. Additionally, the MSCI’s index of Asia-Pacific shares outside Japan is hovering near a 10-month low. Amidst these market concerns, the strong U.S. dollar has pushed the Japanese yen close to 150-per-dollar, potentially triggering an official response or intervention. On the other hand, the euro has dropped 0.7% to a nine-month low of $1.0488, reflecting the impact of the strengthening dollar.
Chinese markets are also facing challenges, as shares in cash-strapped developer China Evergrande were suspended in Hong Kong. The chairman of Evergrande, Hui Ka Yan, is reportedly under police watch, further adding to market uncertainty. A potential liquidation of Evergrande could worsen the already struggling property market and hinder the recovery of the Chinese economy. Fitch Ratings warned that China’s property sector stress would continue to pose cross-sector credit risks, and the government’s limited policy easing might not significantly improve homebuyers’ sentiment. As a result of these concerns, the Chinese yuan has come under pressure and is trading close to a 10-month low.