On Thursday, fresh U.S. inflation data jolted global bond markets, as fears of a stagflation scenario rattled investors across regions—from Tokyo to Frankfurt. July’s Producer Price Index surged 0.9% month-over-month, well beyond the expected 0.2%, highlighting intensifying price pressures that could undermine hopes for aggressive rate cuts.
The immediate market reaction was swift: yields on two-year U.S. Treasuries surged 4.3 basis points to 3.73%, marking a sharp retreat from earlier optimism. Meanwhile, five-year Treasury yields also ticked higher as bond prices declined.
The ripple effect was felt overseas. Germany’s 10-year Bund saw yields rise 2.4 basis points to 2.27%, and the U.K.’s gilt yield climbed 3.7 basis points, touching 4.626% amid broad-based bond selling.
Equity markets, too, wavered—futures tied to the Russell 2000, which tracks U.S. small-cap shares, plunged 1.2% in the moments following the data release. Yet in Europe, stocks maintained modest gains, up around 0.2%, even as markets braced for a rougher open across the Atlantic. Globally, the MSCI index slipped slightly after setting fresh highs in the previous two days.
A sentiment shift is noticeable among global investors: a recent Bank of America poll showed that roughly 70% expect U.S. stagflation—a mix of stagnating growth and rising prices—to dominate the narrative in the near term.
Geopolitical tensions also weighed on market sentiment. With a U.S.–Russia summit on the horizon, oil prices edged upward—Brent crude rose 1.2% to $66.39, and U.S. crude climbed 1.3% to $63.43. Curiously, gold, often seen as a haven during inflation and geopolitical crises, dipped slightly by 0.2%, trading at $3,346 an ounce.
The shock of this inflation data serves as a stark reminder: markets must now contend with the real possibility that price stability may no longer be taken for granted, forcing policymakers and investors to recalibrate expectations and reassess risks.
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