Global markets tumble as oil tops $100, stoking rate hike fears

Stock markets around the world fell sharply on Thursday as Brent crude surged past $100 a barrel for the first time since July, intensifying fears that persistent inflation will force central banks to raise interest rates further.

The sell-off, driven by escalating hostilities between the United States and Iran in the Persian Gulf, rippled from Asia to Europe, with investors pulling back ahead of critical US inflation data due later this week.

Australia Bears the Brunt

Australia's S&P/ASX 200 posted its worst session in nearly six months, falling as much as 169 points before paring losses to close down 92 points, or 1.03%, at 8,819.4, according to AAP. The sell-off wiped roughly A$58 billion from the market at its lowest point.dailymail+1

"Oil is smashing the Australian share market," said Global X ETFs investment strategist Justin Lin. Markets are now pricing in a 79% chance that the Reserve Bank of Australia will hike rates at its September 29 meeting, up from 64% earlier in the week.dailymail

RBA assistant governor Sarah Hunter reinforced the hawkish outlook. "We are concerned about inflation and if there is a sense that inflation is going to be stronger than we think, then the board may well have to raise interest rates to tackle that," she said at the AFR Property Summit in Sydney.dailymail

In the US, the Dow Jones Industrial Average fell 405 points on Wednesday, posting a three-day slide, while Indian benchmarks also weakened, with the Sensex falling 457 points on Wednesday as crude prices climbed.hdfcsky

Bond Yields Surge to Multi-Year Highs

The bond market is amplifying the pressure. UK 10-year gilt yields rose to 5.37% on Thursday, their highest level in years. US 10-year Treasury yields have climbed to 4.80%, up from 4.19% a year ago, while the 30-year yield sits at 5.25%. Australia's three-month Bank Bill Swap Rate hit 4.62%, its highest since late 2011, according to Pepperstone head of research Chris Weston.aapnews.aap+3

UBS ↘ 1.68% CEO Sergio Ermotti warned on Wednesday that "there has been a level of complacency in financial markets in the last few years," telling CNBC Comcast Corporation ↗ 2.56% that the current environment would typically produce far greater volatility. He indicated UBS expects the European Central Bank to begin hiking rates, with the Federal Reserve following suit.benzinga

All Eyes on US Inflation Data

The immediate catalyst for what comes next is Friday's US Consumer Price Index report for August. US producer price data is due Thursday. J.P. Morgan JPMorgan Chase & Co. ↘ 0.63% strategists have said they expect the Fed to raise rates by 25 basis points at its September 15-16 meeting, while Polymarket traders put the odds of a Fed rate hike in 2026 at roughly 75%.CryptoSlate+1

The conflict in the Gulf shows no sign of abating. Iran attacked 10 ships near the Strait of Hormuz after the US announced it had sunk five Iranian oil tankers in the Gulf of Oman, sending crude oil to a fresh three-month high. As Deutsche Bank ↘ 0.86% noted last week, global economic data has beaten expectations for the longest period on record outside the 2009-10 recovery — but that resilience now risks feeding the very inflation that could end it.scmp+1