Super-sized oil tankers rush to the Middle East, Hormuz freight rises to nearly $1.4 million/day

Deutsche Bank strategists stated: “A widening bond spread and renewed inflation concerns led to a tough day for risk assets.” The impact was especially apparent in European markets, with the STOXX 600 Index falling by 1.00%, ending a three-day winning streak. France’s CAC 40 Index dropped 1.22%, Italy’s FTSE MIB Index lost 2.51%, and European banking stocks declined by 3.38%, making them the worst-performing sector. “This weakness also extended to the US market, where the S&P 500 Index fell 0.22%, pulling back from the record high reached the previous day. Although the index pared some losses throughout the session, internal pressures remained apparent, with nearly three-quarters of its constituents declining. Industrials and materials retreated by 2.14% and 1.53% respectively, with cyclical sectors especially weak. Technology stocks demonstrated some resilience, limiting the declines in the Nasdaq Index and the ‘Magnificent Seven’ to 0.22% and 0.20% respectively. However, the small-cap Russell 2000 Index dropped by 1.31%, hitting a four-month low.”

1. On Thursday, the US dollar steadied near an 18-month high amid quiet trading in the Asian session. Previously released minutes from the Federal Reserve Federal Open Market Committee signaled a hawkish stance, indicating that policymakers see inflation as the greatest risk to their economic outlook. 2. The dollar index remained stable near 102.30, rising 0.3% on Wednesday and still staying close to its highest levels since April 9, 2025. Federal Reserve policymakers unanimously voted to raise rates by 25 basis points at the September 15-16 meeting, but Wednesday's minutes revealed divisions among officials regarding the rationale for the hike. 3. Analysts at Westpac wrote that the minutes reinforced the hawkish tone accompanying the September rate increase, with the majority of participants still viewing further policy tightening as appropriate, and nearly all participants seeing inflation risks skewed to the upside during the meeting. 4. The yield on US 10-year Treasury bonds rose by 4.4 basis points to 5.329%. Analysts at Mitsubishi UFJ Financial Group commented that continued selling of US Treasuries is becoming an increasingly important driver in global markets. Should long-term Treasury yields rise further, market focus could shift to a comprehensive tightening of US financial conditions and whether policymakers begin to show greater concern over the state of the Treasury market. 5. However, the minutes did not alter market expectations that the Federal Reserve will hold rates unchanged at the October meeting. The CME FedWatch tool shows that federal funds futures pricing now indicates an 81.7% probability that the Fed will keep rates steady in October, slightly up from 80.1% the previous day.

Barclays strategists Demi Hu and Anshul Pradhan stated in a report that, based on the valuation of U.S. Treasuries, higher yields do not necessarily mean Treasuries are cheap. The strategists noted that if most of the yield reflects market expectations for short-term interest rates, investors receive less additional compensation for holding duration assets compared to investing in shorter-term roll-over instruments. They said: “A higher term premium means higher compensation but also reflects greater uncertainty and duration risk.” They added that this distinction also influences risks at various points along the yield curve. The strategists indicated that if the recent monetary policy path is reassessed, the impacts should mainly be concentrated at the front and middle segments of the yield curve, i.e., in the medium-term range; while if the term premium or the assumption for the long-term neutral rate continues to rise, greater pressure will be exerted on the long end of the yield curve.

The main Nymex US crude oil futures contract has just surpassed the $91.00 per barrel mark, last quoted at $91.01 per barrel, up 3.09% on the day.