Global bond yields hovered near multi-decade highs on Friday as high oil prices stemming from the Middle East conflict stoked concerns about inflation and rate hikes, while US and European shares edged above this week's lows.
News that the US administration will impose higher tariffs on goods from 60 trading partners also did not help the inflation picture, with 30-year Treasury yields marching towards their highest since 2007 and German 10-year Bund yields - the benchmark for the euro zone - holding close to their highest since 2011.
The pan-European STOXX 600 rose 0.3 per cent after a more than 1 per cent drop in the last session, on pace for a mild weekly gain while stock index futures on Wall Street also pointed to a slight rebound after Thursday's weakness.
Nasdaq futures inched 0.1 per cent higher, with a near 4 per cent jump in chipmaker Intel during premarket trading following bumper results. Tech stocks have been under pressure this week as investors grow increasingly uneasy about multi-billion-dollar spending on AI that has yet to yield conclusive evidence of paying off.
Brent crude slipped 3 per cent to $97.69 a barrel, after surging 7 per cent overnight to a two-month high of $102. Attacks on Saudi tankers in the Red Sea risk choking off a second crucial Middle East artery for global oil supplies, alongside Iran's near-closure of the Strait of Hormuz.
President Donald Trump threatened "major military punishment" for Iran and its allies, while the US military conducted a 13th consecutive night of attacks.
"The dollar has been going up for a few days so clearly the risk has been building and the fact that oil has been at these higher levels for several days has really started to work through the cross-asset correlation," said Shaniel Ramjee, co-head of multi-asset investment at Pictet Asset Management in London.
Most major currencies were steady against the dollar on Friday, though the dollar index was on pace for its biggest weekly jump in about a month, driven in large part by growing expectations for the Federal Reserve to raise interest rates.
Markets show traders believe central banks are more likely to raise borrowing costs, with a one-in-three chance of a rate hike from the Fed as soon as next week - a sea change from merely a week ago - while a move in September is more than fully priced in.
The European Central Bank left rates unchanged on Thursday, but a September rate hike is about 70 per cent priced in. Data on Friday offered a more optimistic economic outlook, after surveys of business activity showed Germany's private sector returned to growth in July for the first time in four months and contraction in France's private sector eased this month.
Global tech stocks took a hit earlier this week after Alphabet and Tesla, the first two of the so-called "Magnificent Seven" megacap tech companies to report this season, spooked investors as both burned through cash in their most recent quarter on their big spending on AI infrastructure.
"Valuations in US equities are basically off the roof despite very little cash flow generated by tech and the highest beta part of the market. In general, this is a market where there are (some) bubbly signs," said Gabriele Foà, global credit portfolio manager at Algebris Investments in Milan. - Reuters
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