Rising U.S. Treasury yields, a sharp increase in oil prices and geopolitical risks dominated global markets last week. Escalating tensions in the Middle East and supply concerns related to the Strait of Hormuz strengthened expectations that higher energy costs could again intensify pressure on inflation.
Although inflation in the United States was showing signs of slowing, rising energy prices pushed Treasury yields higher. Concerns that government spending could not be contained and that fiscal balances might deteriorate further intensified selling in the bond market.
The 10-year U.S. Treasury yield rose to 4.75%, approaching its highest levels since January 2025, while the 30-year yield reached 5.34%, its highest level since 2007. Political risks and fiscal problems were assessed as potentially increasing ahead of the midterm elections to be held in the United States in November.
U.S. Treasury expands bond buyback operations
The U.S. Treasury’s decision to expand buyback operations for longer-term bonds provided brief relief in the markets. However, concerns that the impact of the decision could be temporary caused selling pressure to come back to the forefront.
The lack of a clear statement on monetary policy from Fed Chair Kevin Warsh was also among the factors adding to pressure in the bond market. Statements by U.S. officials announcing economic sanctions against Iran heightened concerns about the economic consequences of geopolitical risks.
At the end of the week, the dollar index fell 0.9% to 98.8. The price of gold rose 5.2% to $4,603 per ounce, while the price of October Brent crude increased 6.6% to $94.4 per barrel.
Jackson Hole and Fed minutes in focus
Minutes from the Federal Open Market Committee meeting held by the Fed on July 28-29 showed that many officials believed monetary policy could be tightened further if inflation did not decline.
The Jackson Hole Economic Policy Symposium, scheduled for August 27-29, along with growth and employment data from the United States, will be important in determining the direction of markets in the new week. Investors will also follow Nvidia’s earnings report.
Weekly losses on the New York Stock Exchange
Concerns over the bond market also brought selling to the New York Stock Exchange. The S&P 500 ended the week down 1.43%, the Nasdaq lost 2.05% and the Dow Jones fell 0.85%.
Next week, the United States will release the house price index, new home sales, growth data, the core personal consumption expenditures price index, durable goods orders, weekly jobless claims, preliminary revised data on employment statistics and the University of Michigan consumer confidence index.
U.K. outperformed in Europe
Geopolitical uncertainty, rising energy prices and inflationary pressure weighed on European stock markets. The U.K.’s FTSE 100 rose 0.62%, while France’s CAC 40 fell 1.76%, Italy’s MIB 30 declined 0.25% and Germany’s DAX dropped 1.15%.
Germany’s 5-year Treasury yield reached 3.008%, its highest level since 2008. France’s 30-year Treasury yield rose to 4.91% amid political uncertainty ahead of next year’s presidential election.
September contracts at the Netherlands-based virtual natural gas trading hub TTF rose to $65.9, reaching their highest level since March. In the euro area, consumer prices rose 0.2% month-on-month and 2.9% year-on-year in July, remaining above the European Central Bank’s 2% target.
Consumer prices in the U.K. rose 0.3% month-on-month and 2.9% year-on-year in July. As inflation reached its highest level in four months, rising energy costs and drought were assessed as potential risks to food prices in the coming months.
Next week in Europe, Germany’s growth and economic confidence data, the minutes of the European Central Bank’s meeting, Germany’s unemployment rate and the euro area consumer confidence index will be monitored.
Asian stocks mostly declined
Stock markets across Asia, except Hong Kong, ended the week lower. Japan’s 10-year Treasury yield rose to 2.95%, its highest level since 1996. Economic growth slowed in Japan while inflation continued to rise.
Japan’s economy grew 0.3% quarter-on-quarter and 1.1% year-on-year in the second quarter. Weakening domestic demand limited the positive contribution from exports, leaving the result below expectations. Inflation in July rose to 1.9% under the impact of higher energy prices, reaching its highest level since December.
China’s industrial production rose 4.5% year-on-year in July, falling short of the 5% expectation. Retail sales increased 0.6%, while fixed-asset investment declined 6.7%.
Real estate investment in China fell 19.2% year-on-year in July, while home sales dropped 13.2%. The unemployment rate was recorded at 5.2%.
On a weekly basis, the Nikkei 225 fell 3.93%, the Kospi declined 0.93% and the Shanghai Composite Index dropped 0.56%. The Hang Seng Index rose 3.55%. Next week, China will release industrial profits, while Japan will publish Tokyo consumer prices, the unemployment rate and consumer confidence data.
Borsa Istanbul ends week higher
Turkish markets diverged from the global trend and ended the week higher. The BIST 100 index rose 2.42% on a weekly basis to 14,514.82 points, while the dollar/Turkish lira exchange rate increased 0.33% from the previous weekly close to 48.0400.
In Turkey, the unemployment rate in labor force statistics for the second quarter of the year fell 0.3 percentage points from the previous quarter to 7.9%. The domestic trade balance will be monitored next week.
