- A new wave of drone attacks in the Middle East Gulf region has caused a fire at the UAE nuclear power plant, sharply escalating the risk of a blockade of the Strait of Hormuz. Brent crude oil prices surged by 1.9% during the day to $111.34 per barrel.
- Long-term inflation concerns have led to a sharp decline in global bond markets, with the yield on the US 10-year Treasury note soaring to a 15-month high of 4.631%. The market's pricing of the probability of a Fed rate hike this year has surged to a 50-50 chance.
- Risk aversion sentiment has spread, causing Asia-Pacific stock markets to decline across the board. This week's global equity market trading focus is on Nvidia's (NVDA:US) earnings report to be disclosed on Wednesday and the performance of retail giants like Walmart (WMT:US).
Chokepoint Blockade and Physical Inventory Depletion
Due to the continued abnormal operation of the Middle East's critical chokepoint, the rigid disruption of the global physical crude oil supply chain is accelerating. The latest industry risk report from Capital Economics points out that the closure of the strait is comprehensively depleting global commercial crude oil inventories. If the current standoff continues until the end of June, global inventories will fall below historical defensive thresholds, paving the way for Brent crude to surge to $130 to $140 per barrel in the third quarter. Data from the forward delivery market also confirms this supply shortage expectation, with September and December crude oil futures contracts hitting new highs.
Global Bond Market Plunge and Rebalanced Rate Hike Probability
Under the shadow of input-driven inflation due to persistently high energy costs, the global fixed income market has experienced a structural sell-off. The yield on the US 10-year Treasury note surged by 23 basis points last week to 4.631%, while the 30-year long-term US Treasury yield also climbed to 5.159%. This dramatic volatility indicates that fixed income investors have begun to price in a more aggressive tightening premium. The market currently presents a fully symmetrical 50-50 probability pricing for the Fed not only failing to cut rates this year but possibly resuming rate hikes. The minutes of the Fed's last meeting, scheduled for release on Wednesday, will be a key indicator for assessing a shift to a neutral policy stance.
Deterioration in Equity Market Breadth and Structural Profit Reassessment
Major Asia-Pacific and European and American stock index futures were under pressure across the board on Monday, with the MSCI Asia-Pacific index excluding Japan down 0.8% and the Nikkei index down 0.9%. Citigroup (C:US) strategists pointed out that although Wall Street has previously maintained high volatility, the quality of micro-earnings growth is deteriorating. Quantitative data shows that half of the recent earnings growth of the S&P 500 index comes from one-time non-core items such as tariff rebates and asset revaluations, and the upward momentum of the index is highly concentrated in 20 core heavyweight stocks. Against the backdrop of rising discount rates due to higher US Treasury yields, if there is no clear path to easing macroeconomic tensions, valuation multiples will face overall reassessment pressure.
Dominant Safe-Haven Dollar and Non-US Currency Defense
Liquidity in the foreign exchange market is rapidly concentrating on dollar assets with dual attributes of being a net energy exporter and having high interest rate differentials. The euro has fluctuated downward to around 1.1618 against the dollar, while the pound is hovering at 1.3311 against the dollar due to domestic political uncertainty and a wave of gilt sell-offs. The dollar-yen exchange rate remains at a strong high of 158.91. Analysts point out that as the Japanese cabinet plans to issue new bonds to finance an additional budget to cushion the impact of geopolitical conflicts, Japanese government bond yields have reached their highest point since 1996, significantly increasing the marginal cost for the Japanese Ministry of Finance to implement regular foreign exchange interventions to defend the 160 threshold.
