US Interest Rate Hikes, Oil Prices Pressure Global Markets

Global markets are facing increasing pressure due to the strength of the US economy and rising expectations of interest rate hikes, coupled with soaring oil prices and ongoing geopolitical tensions, according to financial observer Majd Karam. Karam noted that the US Composite Purchasing Managers' Index rose to 58.4 in September, its highest level since July 2021, indicating accelerated economic activity and growing inflationary pressures.

The robust US economic performance fuels expectations of continued tight monetary policy, especially with growth in both the services and manufacturing sectors. Data from S&P Global shows the US Business Activity Index increasing for the fourth consecutive month, while job growth reached its fastest pace in over four years. Simultaneously, input costs hit a nearly four-year high, prompting S&P Global to issue a hawkish signal regarding interest rates.

Karam explained that the current market equation is: a strong US economy increases the likelihood of interest rates remaining high or rising further, which in turn boosts bond yields. Indeed, the 10-year US Treasury yield climbed to approximately 5.10% recently, a level not seen since 2007-2008, with several other maturities exceeding 5%. CME data indicates that the probability of an October rate hike has surpassed 70%.

Furthermore, rising crude oil prices are adding to inflationary pressures. Brent crude rose about 3.9% to $103.08 per barrel, and West Texas Intermediate increased 1.8% to $92.16, following five days of losses amid uncertainty over energy supplies. Karam stated that the combination of rising oil prices and bond yields increases pressure on economies and consumers, raising costs for financing, energy, and transportation.

In contrast, gold prices have fallen due to rising bond yields and a strong dollar. CME data confirmed a more than 1% drop in gold futures on September 23, with silver also declining. The currency markets have also felt the impact, with the dollar strengthening against the Israeli shekel, reaching approximately 3.04 shekels per dollar as of September 24.

Karam described the current situation as a potent mix of a strong US economy, expectations of higher interest rates, elevated bond yields, a stronger dollar, and oil prices exceeding $100. He believes these factors will keep markets in a state of anticipation and volatility. Markets are also awaiting a meeting between US President Donald Trump and Chinese President Xi Jinping, highlighting the importance of trade relations between the world's two largest economies.