Global Markets Buckle Under High Borrowing Costs and Soaring Oil Prices

Global markets are grappling with a perfect storm of high borrowing costs, soaring oil prices, and central bank rate hikes. This has put pressure on governments, investors, and households, tempering enthusiasm for AI-driven equities.

The situation is particularly dire in France, where the minority government's budget bill has sparked weeks of wrangling over spending cuts ahead of next year's presidential election. The country's 10-year bond yield has hit its highest since 2002 at around 5%, while student and public sector strikes are gaining momentum.

France's debt-to-GDP ratio is a record high of nearly 120%, with the government planning to sell a record €340 billion in bonds next year. The Bank of France chief has warned that the country cannot rely on the ECB to fix its debt problems, highlighting market pain as the election looms.

Currency markets are also feeling the heat, with the dollar expected to gain and the euro struggling. The dollar index has surged to its highest in 18 months, driven by surging growth, high US yields, and elevated oil prices. However, heavily indebted eurozone bond markets, such as France's, are blowing up, and energy costs will weigh on growth, limiting rate rises.