Global shares stumble while bond yields climb on inflation worries

NEW YORK/LONDON - Global equity indexes fell on Friday (May 15) while bond yields soared as investor euphoria over technology stocks gave way to inflation fears and traders raised bets that the Federal Reserve will hike interest rates this year.

US President Donald Trump left China on Friday with no major breakthroughs on trade or tangible help from Beijing to end the Iran war.

And uncertainty over a Middle East peace deal drove oil prices higher, adding to concerns about inflationary pressures after two batches of high inflation readings for April were released earlier this week.

The S&P 500 and the Nasdaq sold off after climbing to closing records on strength in artificial intelligence-related technology stocks in the previous two sessions.

"There's a realisation that the market had gotten way ahead of itself. It wasn't paying enough attention to what the bond market and economic data was telling it. It was caught up in this momentum AI trade," said Kenny Polcari, chief market strategist at Slatestone Wealth.

"The market is finally paying attention to what the bond market and the economic data is telling it. Inflation remains sticky and is potentially going to move higher in the months ahead."

Equities go into reverse

On Wall Street the Dow Jones Industrial Average fell 537.29 points, or 1.07 per cent, to 49,526.17, the S&P 500 fell 92.74 points, or 1.24 per cent, to 7,408.50 and the Nasdaq Composite fell 410.08 points, or 1.54 per cent, to 26,225.15.

Still, the S&P 500 logged its seventh straight weekly gain, its longest winning streak since late 2023. But the Nasdaq and the Dow fell on the week, with the Nasdaq snapping a six-week winning streak.

MSCI's gauge of stocks across the globe fell 17.06 points, or 1.53 per cent, to 1,099.00.

Earlier, the pan-European STOXX 600 index finished down 1.48 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.5 per cent and Japan's Nikkei slid 1.99 per cent after data showed wholesale inflation accelerated to 4.9 per cent in April, the fastest pace in three years, keeping the Bank of Japan on track to raise rates.

In South Korea the Kospi index fell more than six per cent on Friday after a steep run higher in recent months. It is still up 77.8 per cent year to date.

[[nid:735039]]

Government bond yields spike

In government bonds, US Treasury yields climbed to their highest levels in a year as elevated oil prices added to fears that ongoing energy disruptions in the Middle East could add to inflation.

The yield on benchmark US 10-year notes rose 13.8 basis points to 4.597 per cent, from 4.459 per cent late on Thursday while the 30-year bond yield rose 10.9 basis points to 5.122 per cent.

The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 8.7 basis points to 4.079 per cent, from 3.992 per cent late on Thursday.

In currencies, the dollar rose for its fifth consecutive day, placing it on track for its biggest weekly gain in two months, as the inflationary pressures drove bets for a Fed rate hike this year.

Traders were last betting on a roughly 38.8 per cent chance of a 25 basis point rate hike by year-end compared with a less than 14 per cent probability a week ago, according to CME Group's FedWatch tool, which showed a 9.9 per cent chance rates would be 50 basis points higher by year end.

Friday is Jerome Powell's last day as Fed Chair before he is replaced by Kevin Warsh. The incoming Chair was nominated by Trump, who has pressured Powell to cut interest rates.

"The market is going to test Kevin Warsh. They're going to press him to see what he really stands for," Polcari said.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.33 per cent to 99.28, with the euro down 0.38 per cent at US$1.1624 (S$1.50).

Against the Japanese yen, the dollar strengthened 0.25 per cent to 158.74.

Sterling fell for the fifth straight day, and hit its lowest in more than five weeks. It was last down 0.61 per cent at US$1.3318 after sliding 0.9 per cent on Thursday.

Britain's governing Labour Party said it agreed to let Greater Manchester Mayor Andy Burnham seek a return to parliament, a step toward a possible challenge to Prime Minister Keir Starmer's leadership. Meanwhile British Housing Minister Steve Reed urged Labour Party lawmakers to get behind Starmer, saying nobody positioning to replace him had shown enough support.

Oil prices rallied on supply worries after Foreign Minister Abbas Araqchi said Iran has "no trust" in the US and is interested in negotiating only if Washington is serious. Trump said he was running out of patience with Iran and that he and Chinese leader Xi Jinping agreed that Iran cannot have a nuclear weapon and must reopen the Strait of Hormuz.

US crude settled up 4.2 per cent, or US$4.25, at US$105.42 a barrel while Brent rose to US$109.26 per barrel, up 3.35 per cent, or US$3.54, on the day.

Among precious metals, gold fell to a more than one-week low under pressure from the rising dollar and Treasury yields as well as the bets for higher interest rates.

Spot gold fell 2.35 per cent to US$4,540.11 an ounce. US gold futures fell 3.29 per cent to US$4,524.30 an ounce.

ALSO READ: Wall Street stocks touch records on upbeat earnings, dip in oil