Bond markets groan as Brent crude climbs above US$90/bbl

Stocks on Wall Street were weaker and the yield on the US 30-year government bond rose to its highest level since 2007 as investors grew increasingly nervous about the impasse in the Middle East, with US President Donald Trump saying he’s not interested in extending the expiring agreement with Iran.

The Magnificent 7 megastocks were broadly weaker in the downbeat day – Nvidia was an exception – with a report that big tech companies had about US$3 trillion of capital spending plans sitting in off-balance sheet commitments, while Alphabet plans to tap Australian investors in a A$5 billion bond offering.

Meanwhile, fast-fashion retailer Shein was said to be seeking up to US$2 billion in an initial public offering in Hong Kong, with a listing eyed near the end of the month.

And Australian futures are pointing to a soft start to the trading day Downunder, with mining giant BHP the highlight across the Tasman, while Mercury NZ and Vector are the latest entrants in the domestic earnings season and Infratil holds its annual meeting.

More discomfort

Brent crude oil futures climbed 2.1% to US$90.58 a barrel at 7am in Auckland as tensions between the US and Iran remained elevated. US President Trump told Fox News he wasn’t in a hurry to reach a deal and threatened to bomb mediator Oman if it got in the way of an agreement.

The oil benchmark climbed above US$91 a barrel after Iranian state media confirmed the seizure of a tanker in the Strait of Hormuz, and reports over the weekend said the Islamic Republic planned to take a more aggressive military stance.

The rising energy prices weighed more broadly on Northern Hemisphere markets on Monday, with stock markets in the US and Europe weaker and US, German and Japanese long-dated government bond yields hitting fresh multi-decade highs – the yield on the US 30-year bond rose 5 basis points to 5.31% at 7am in Auckland.

“The synchronised nature of the move reflects a global repricing of the term premium, the compensation investors demand for taking duration risk,” Bank of New Zealand senior market strategist Jason Wong said in a note. “While there are likely multiple drivers, the sustainability of current fiscal trajectories and the prospect of increased bond supply are two obvious factors.”

The S&P 500 fell 0.4% in late trading, while the tech-heavy Nasdaq Composite was down 0.3%.

Hidden depths

The Wall Street Journal reported nine top tech companies had about US$3 trillion of off-balance sheet commitments in footnotes in their most recent securities filings, which were growing at a faster pace than traditional capital expenditure.

Meanwhile, Google-parent Alphabet was seeking to raise A$5 billion through an Australian dollar-denominated bond, with ANZ among the mandated banks.

The Dow Jones Industrial Average fell 0.5% in late trading, with Nike, Microsoft and Sherwin-Williams the main laggards on the blue-chip index.

Meanwhile, defence contractor L3Harris Technologies declined after the company removed its chief executive and chairman Christopher Kubasik for violating the firm’s code of conduct, without providing more details.

Crypto treasury firm Strategy rallied after selling US$333.7 million of common stock in the past week to pay for repurchases of its preferred shares. It didn’t sell any Bitcoin over the past week, with the cryptocurrency up 2.1% at US$64,376 at 7am.

Across the Atlantic, the UK’s FTSE 100 fell 0.3%, while Germany’s DAX declined 0.4% and France’s CAC 40 was down 0.7%.

Meanwhile, Bloomberg reported Shein Global Holdings was targeting a valuation of between US$26 billion and US$27 billion in an IPO slated for the end of the month, having faced pushback from investors for a higher valuation.

And Alibaba Group rallied after the Chinese tech firm said it was selling its Lingxi Games division to private equity firm Trustar Capital for at least US$1.5 billion.

That negative tone is set to carry through into the Asian trading session, with Australian futures pointing to a 0.5% decline for the S&P/ASX 200 index when trading opens across the Tasman. The kiwi dollar traded at 59 US cents at 7am from 59.10 cents yesterday.

BHP is the major company reporting across the Tasman, with iron ore futures up 0.3% at US$95.50 a tonne.

The Australian Financial Review reported the NRL and NZ Rugby were locked in a trademark dispute over the rugby league competition’s new PNG Chiefs franchise.

On this side of the Tasman, power company Mercury is expected to report a strong result with investors focusing on what’s likely to be a conservative outlook, while Vector’s dividend and guidance will be in view with analysts looking for a positive surprise.

Meanwhile, Infratil holds its annual meeting in Wellington, while the Reserve Bank will update foreign holdings of government bonds.

Reporting by Paul McBeth. Image from Aditya Vyas on Unsplash.