Bond Yields Soar, Tech Stocks Tumble Amid Inflation Fears
The global bond market is in turmoil as yields surge across major economies. The UK's 10-year gilt yield jumped to 5.25%, its highest since the financial crisis, while the 30-year gilt reached 5.89%, a level not seen since 1998. Meanwhile, euro area August inflation rose to 3.3% from 2.9% in July, with energy inflation accelerating to 14.3%.
The market is nearly fully pricing a European Central Bank rate increase this month, following comments from James Bullard at Jackson Hole that the bond market turned into something bigger. Yields are rising in the US, Japan, the UK, and Europe simultaneously, putting pressure on tech stocks. The stock market is dealing with all four markets as one trade.
The oil price surge adds to inflationary pressures, with WTI up about 3% above $88 per barrel and Brent near $92. This feeds into the same inflation argument that bond investors are already trading. Warsh said at Jackson Hole that inflation has not improved enough, and oil is not giving the Fed any reason to disagree.
The Nasdaq index took a hit on Tuesday morning, with Nvidia, AMD, and Micron all down by around 2% due to high valuations. Microsoft and Alphabet have lost more than 1%. The Dow Jones Index held up better due to its lower exposure to the semiconductor group.