Surging oil prices, higher bond yields weigh on stocks

NEW YORK: Oil prices surged Thursday (Sep 10) as advances by Yemeni rebels threatened the flow of crude supplies while yields on long-term US Treasury bonds reached new multi-year highs following data showing an uptick in US wholesale inflation.

The benchmark US oil contract, West Texas Intermediate, jumped above US$100 a barrel Thursday after Yemen’s Houthis seized control of the strategic Red Sea port city of Mocha on Thursday.

The international benchmark Brent crude soared more than 6 per cent past US$107 a barrel, hitting its highest level since May.

Major Wall Street indices spent the entire session in the red, with the S&P 500 falling 0.6 per cent, dropping for a fourth straight day. 

“For markets, it’s getting harder and harder to ignore the combination of rising oil prices and higher bond yields, which are starting to weigh on investor sentiment during what historically has been a seasonally challenging period for stocks,” said Angelo Kourkafas of Edward Jones.

Long-term US Treasury bond yields continued to climb, with the 30-year bond reaching 5.36 per cent, a new peak since 2007.

The jump came after the US government released producer price inflation numbers showing an acceleration in August driven by energy prices. The index climbed 5.4 per cent in August, up from 4.8 per cent in July.

“It’s not necessarily the level, but the speed with which rates are increasing” that is concerning, Kourkafas said of bond yields.

Markets will get additional US inflation data with Friday’s release of the August consumer price index.

A Yemeni military source told AFP that the Iran-backed Houthis were advancing towards the strategic Bab al-Mandab strait, the waterway which links Asia to Europe via the Red Sea and Suez Canal, which would make it easier for them to disrupt Saudi shipping.