Global markets adopted a risk-off stance on Friday, as a pronounced selloff in South Korean equities exerted downward pressure on technology stocks across various regions, while oil prices experienced an uptick amid renewed apprehensions regarding potential disruptions in the Strait of Hormuz. “Markets have experienced a decline in momentum following President Trump’s assertion that the US does not require the Strait of Hormuz to remain open ‘at all’,” noted strategists from Deutsche Bank in a morning report. Global bond yields increased in response to escalating inflation concerns and subdued demand for Treasuries, as investors evaluated the results of President Donald Trump’s meeting with Chinese President Xi Jinping in Beijing. As we consider the upcoming day, market participants will direct their attention towards the U.S. industrial production figures for April, alongside the Empire State manufacturing survey results for May.
Asian equities experienced a notable decline, with South Korea at the forefront, as the KOSPI dropped 6.1% after momentarily surpassing the 8,000 mark earlier in the trading session. The decline extended to global semiconductor companies as investors capitalized on gains from some of the market’s top performers, which fell by 8.6%, while another segment decreased by 7.7%. In the U.S., a memory-chip manufacturer experienced a decline of 2.2% in premarket trading. Mainland Chinese stocks demonstrated relative resilience compared to their regional counterparts, even amid the prevailing weakness observed throughout Asia.
U.S. equity futures declined in the wake of the Asian selloff, with contracts associated with the down 0.8% and futures decreasing by approximately 1.1%. European markets exhibited a downturn, with Germany’s index decreasing by 1.2%, while France’s indices both experienced a decline of approximately 1%. Investor enthusiasm seemed to diminish following a robust rally in recent weeks, as geopolitical uncertainty and increasing bond yields exerted additional pressure on equities. In the U.K., political developments garnered attention as Prime Minister Keir Starmer encountered renewed internal pressure due to a parliamentary vacancy that may enable Greater Manchester Mayor Andy Burnham to join Parliament.
Oil prices experienced an increase of approximately 3% on Friday, maintaining a trajectory for robust weekly gains, as the Strait of Hormuz effectively remained closed and initiatives to resolve the conflict continued to be stalled. Future prices increased approximately 2.9% to $108.75, whereas futures surged by 3.2% to $104.42. The recent increase followed Trump’s assertion that he was “losing patience” with Iran, heightening concerns regarding a potential extended interruption of energy supplies in the Gulf. Markets exhibit considerable sensitivity to events surrounding Hormuz, a crucial conduit for a substantial portion of global crude exports. “Despite the current outlook of alarmingly low oil inventories, it seems that attention is increasingly turning to demand destruction, which explains the hesitation to reconvene the March or April summits. Of course, such a jump cannot be ruled out in the event of an escalation,” Tamas Varga stated.
Trump left Beijing on Air Force One. One after engaging in extensive discussions with Xi that extended beyond two hours on Thursday. Although the summit yielded limited definitive policy declarations, investors found some optimism in the more amicable demeanor exhibited by the two leaders. “We didn’t think any of the headlines from Trump’s trip were narrative-shifting at all,” analyst Adam Crisafulli stated. Trump stated that both nations desired a resolution to the conflict with Iran and emphasized that Iran must not acquire nuclear weapons. He also asserted that the two parties had achieved “fantastic trade deals,” although specifics were not disclosed. Chinese officials indicated that the meeting yielded “a series of new common understandings.” Markets found some reassurance in remarks indicating that trade tensions might diminish further. Trump asserted that U.S.-China relations would be “better than ever,” whereas Chinese state media conveyed that Xi informed American executives that China’s “doors to the outside world will open wider and wider.”
Government bonds experienced a sell-off across major markets, resulting in higher yields as investors reevaluated inflation risks and the outlook for central banks. Deutsche Bank strategists observed that “the U.S. rates mood also wasn’t helped by lukewarm demand for the latest T-bill auctions as the Treasury increased auction sizes for the past couple of weeks.” The climbed above 4.05%, while the approached 4.52%. In Japan, the indicator reached its highest level since 1996, as stronger-than-expected producer prices bolstered expectations that the Bank of Japan may persist in tightening its policy. European bond futures experienced a decline.