Markets Rally as Fed Rate-Hike Bets Ease Amid Renewed Oil and Geopolitical Risks
Global stocks extended their gains as expectations for a Federal Reserve rate hike this month eased. MSCI’s Asia Pacific Index rose 0.8%, helping global equities advance for a third consecutive day after Fed Governor Christopher Waller signaled support for keeping interest rates unchanged if inflation continues to cool.
Markets are now pricing roughly even odds of a 25-basis-point rate hike in September, down from around 70% earlier this week. Treasuries and gold held their gains, while the Dollar steadied after falling to its lowest level since May.
The Yen pared some of its recent strength, trading around 156.28 per Dollar after gaining as much as 2% on Thursday. Expectations for further Bank of Japan tightening have increased, while traders remain alert to the possibility of Japanese intervention. The Yen's rebound has also encouraged traders to unwind carry trades and increase bets on additional BoJ tightening.
Nomura expects the BoJ could raise rates at three consecutive meetings through December if Yen weakness persists. Japan also remains in focus as government ministries requested significantly higher spending for the next fiscal year, leaving investors watching the final budget size and how the government plans to finance it.
Stocks and bonds also benefited from easing pressure on yields following the sharp global selloff earlier this week. Rising oil prices, fiscal concerns, and heavy government and corporate borrowing had previously pushed yields toward multi-decade highs.
Oil remained a key focus. Brent crude edged higher to around $95.65 a barrel and is heading for its strongest week since July as renewed US-Iran tensions raised concerns over prolonged disruptions to energy flows through the Strait of Hormuz. Oil is also on track for its strongest weekly gain since July.
In broader markets, Nasdaq 100 futures gained 0.2%, while Bitcoin traded near $81,000 and the US 2-year Treasury yield held around 4.34%.
Geopolitical tensions remained elevated after South Korea began preparations for a possible naval support deployment to the Strait of Hormuz. President Donald Trump also increased pressure on Seoul over its support for the Iran conflict, adding another layer of uncertainty around the region's energy flows.
Elsewhere, Brazil's Senate delayed President Luiz Inácio Lula da Silva's proposal to reduce the working week without cutting pay. Australian bonds also remained under pressure as yields climbed alongside the broader global fixed-income selloff.
Overall, markets benefited from reduced expectations for a September Fed rate hike, supporting equities, Treasuries, and gold while limiting Dollar strength. However, rising oil prices, renewed US-Iran tensions, Strait of Hormuz risks, Japanese monetary-policy expectations, and fiscal pressures remain important factors for investors to monitor.
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