Oil, bond yields keep rising ahead of Fed meeting; Wall Street rattled

Stocks on Wall Street extended their decline ahead of the Federal Reserve’s policy meeting, which is expected to deliver a rate hike as elevated oil prices push up bond yields amid fears of another energy inflation shock.

Artificial intelligence giants OpenAI, Anthropic and Google DeepMind are working together on steps to address safety concerns after fears emerged over whether self-improving models were developing at too fast a pace for humans to keep control of them.

Bitcoin sank after US senators blocked digital asset structure legislation that would have helped bring crypto into the mainstream by making the Commodity Futures Trading Commission its primary regulator.

And dairy prices fell at the latest Global Dairy Trade auction, while Statistics New Zealand’s balance of payments figures and Westpac’s quarterly consumer confidence survey are due today.

Saudi squeeze

Brent crude oil futures rose 2.9% to US$108.69 a barrel at 7am in Auckland as the closure of a key pipeline in Saudi Arabia bypassing the Strait of Hormuz put pressure on the Middle East nation, which throttled back production to its lowest level in decades.

Government bonds remained under pressure, with the yield on US 10-year treasuries hitting 5.04%, its highest level since 2007, settling back to 5% at 7am. New Zealand’s equivalent was 5.05%.

“This reflects concerns that higher oil prices will feed into broad-based inflation pressure, while central banks appear to have little tolerance to accommodate any further inflation from current levels,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “Furthermore, for many countries, higher rates will add to governments’ interest bills, driving further deterioration in deficits and debt ratios.”

The CME FedWatch tool showed bond traders had priced in a 95% chance of a rate hike by the Fed when its open market committee reviews policy on Wednesday in Washington. The Bank of England and Bank of Japan review their respective monetary policies later this week.

Stocks on Wall Street and in Europe were broadly weaker ahead of the central bank meetings, with Amazon, Walt Disney Co and Nike at the bottom of the Dow Jones Industrial Average as the blue-chip index slipped 0.7% in late trading. The S&P 500 was down 0.5% and the tech-heavy Nasdaq Composite fell 0.8%.

The UK’s FTSE 100 decreased 0.4%, Germany’s DAX dipped 0.2% and France’s CAC 40 slid 0.3%.

Fund managers dialled back their risk appetite, with the Bank of America survey showing a net 49% of fund managers were overweight on global equities, down from 56% last month, with rising bond yields seen as the biggest tail risk to the market.

Energy companies were among the day’s gainers, with ExxonMobil Holdings, Chevron Corp and Occidental Petroleum on the green side of the ledger.

Meanwhile, crypto-linked companies such as Coinbase and Robinhood were weaker as Bitcoin dropped 3.8% to US$75,966 after the US Senate blocked the so-called Clarity Act legislation aimed at delivering favourable and durable rules for the sector. Democrat senators cited concerns about ethics provisions meant to address US President Donald Trump’s crypto business interests.

Safety first

Chipmakers such as Nvidia and Intel rallied after their recent losses as OpenAI said it was working with Anthropic and DeepMind to address AI safety concerns amid fears the technology was developing at too fast a pace.

Meta Platforms advanced after it said it planned to start using a new inhouse AI chip in data centres in the first half of next year, which it predicted would save money and energy, while OpenAI said it was looking at Canada as an option for data centres.

Australian futures are pointing to a 0.4% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar traded at 57.59 US cents at 7am from 57.56 cents yesterday.

The GDT price index fell 1.1% for an average winning price of US$3,868 a tonne at the latest Global Dairy Trade auction, with whole milk powder prices down 0.8% at US$3,565/tonne. Cheddar prices jumped 17% to US$4,075/tonne.

Meanwhile, Stats NZ’s balance of payments figures today are expected to show the annual current account deficit widened to 3.8% of gross domestic product in the June quarter and Westpac’s quarterly consumer confidence survey is due.

Briscoe Group is due to report its first-half result today, having said net profit would be at least $27 million on a 0.3% lift in sales.

Contact Energy holds its annual meeting in Wellington today, and Auckland International Airport goes ex-dividend.

Reporting by Paul McBeth. Image from Timothy Newman on Unsplash.