FISG Daily Market Wrap 19th August

Markets Under Pressure as Oil, Yields and Chip Stocks Drive Risk-Off Mood

Global markets came under renewed pressure as higher oil prices, elevated bond yields and geopolitical uncertainty weighed on risk sentiment. Semiconductor stocks led the decline, while Treasuries recovered modestly after the recent global bond selloff. UK inflation remained sticky in July, with headline CPI holding at 2.9% YoY, in line with expectations but rising from 2.6% previously. Core CPI came in at 2.6%, above the 2.5% forecast and unchanged from the previous month, highlighting persistent underlying price pressures. In Asia, the selloff in semiconductor stocks deepened. Samsung Electronics and SK Hynix fell more than 7%, following a 5% decline in the Philadelphia Semiconductor Index on Tuesday. The broader Asian semiconductor gauge dropped more than 3.5%, while the MSCI Asia Pacific Index fell around 2.2%. South Korea’s Kospi plunged roughly 6%, as investors grew increasingly concerned about higher borrowing costs for hyperscalers and stretched valuations across the AI trade. European and US equity futures pointed to further weakness, suggesting that the risk-off move could extend into Western markets. Oil prices continued to climb, with Brent trading above $91 a barrel and extending its gains for a fourth consecutive session. Prices have risen 4.5% over the previous three sessions as there remains no clear progress toward resolving the US-Iran conflict. Vessel traffic through the Strait of Hormuz remains extremely low, with only six ships crossing on Tuesday, according to preliminary data. The disruption continues to reinforce concerns over energy supply and inflation. Geopolitical tensions also remained elevated after authorities reported drone strikes on industrial sites in Russia’s Ufa. In rates, Treasuries edged higher following the recent global bond selloff. The 10-year US Treasury yield declined 1 bp to 4.69%, after approaching its highest level since early 2025, while 30-year yields recently reached levels not seen since 2007. Japanese 20-year government bond yields also moved lower. Bond markets are now shifting focus toward the longer-term interest-rate outlook. After recent economic data reduced expectations for further Fed hikes this year, options markets are increasingly pricing protection against the possibility of a Fed pivot toward rate cuts in 2027. China continued to stand out on the rates side, with a relentless decline in long-end government bond yields driving an aggressive curve flattening and highlighting the growing divergence between Chinese monetary conditions and global markets. In FX, the Canadian dollar strengthened after the Trump administration agreed to delay 50% tariffs on billions of dollars of Canadian products for three days following high-level negotiations in Washington. Gold remained around $4,350 an ounce after suffering its largest decline in almost a month. The combination of elevated bond yields, a stronger risk-off environment and uncertainty surrounding the Strait of Hormuz has complicated the near-term outlook for the precious metal.