ASX set to slide, Wall Street declines as oil rises on escalating Middle East tensions

A rise in oil prices is sending worries about inflation and yields in the bond market higher, erasing some of the relief the US Treasury Department created the day before. The higher yields and a big drop for Walmart helped drag the US stock market lower.

The S&P 500 fell 0.9 per cent for its fourth loss in the five days since setting its record last week. The Dow Jones Industrial Average dropped 1.3 per cent, and the Nasdaq composite sank 1 per cent. Treasury yields climbed after the price of Brent crude rose 2.4 per cent following President Donald Trump’s latest threat to Iran.

The Australian sharemarket is set to decline, with futures at 4.55am AEST pointing to a fall of 23 points or 0.3 per cent, at the open. The ASX added 0.3 per cent on Thursday. The Australian dollar was trading at US71.10¢. Guzman y Gomez and Inghams are among the companies scheduled to report earnings today.

The bond market remains the centre of the action after yields charged higher through the summer on worries about high inflation, gargantuan government debts and other factors. Treasury Secretary Scott Bessent made a move that jolted financial markets to at least double the size of his department’s planned purchases of longer-term Treasurys from September 9 through November 4.

That helped push yields down after the 10-year Treasury’s yield had hit its highest level in more than a year and the 30-year yield got back to where it was in 2007, before the Great Recession sent yields toward zero worldwide. It’s a big deal because high yields slow the economy by raising interest payments for people, companies and the government, and they can undercut prices for stocks and other investments.

But analysts had cautioned the effect may be short lived, given how small the purchases are relative to the overall size of the Treasury market and how they don’t fix the fundamental concerns of investors that had driven up yields. Plus, more signals arrived quickly to push worries higher.

The US government’s debt topped $US40 trillion ($56.2 trillion) on Wednesday, a staggering record that arrived just months after the national debt first blew past the $US39 trillion mark in April, because Washington continues to spend far more money than it brings in.

And on Thursday, the price for a barrel of Brent crude climbed 2 per cent to $US93.41 as uncertainty continues about when the war with Iran will allow oil tankers to freely exit the Persian Gulf again. President Donald Trump threatened Iran with “the MOST CRUSHING ECONOMIC OPERATION EVER TAKEN AGAINST ANY COUNTRY” late on Wednesday but provided few details.

That helped push the 10-year Treasury yield up to 4.70 per cent from 4.65 per cent late Wednesday. It’s almost back to its 4.71 per cent level from late Tuesday, before the Treasury Department made its announcement.

A couple encouraging reports on the US economy also helped push up longer-term Treasury yields, which move with expectations for the economy and inflation in coming years.