In the commodity markets, Brent crude futures LCOc1 jumped another 3.8% to $105 a barrel amid the re-escalation of the Iran war and as traders grappled with the prospect of yet more inflationary pressure. O/R
"I think that Brent pushing through the $100 level will be seen by many in the market as a significant event in the current scheme of things," said Nick Twidale, chief market strategist at ATFX Global.
Twidale said traders who had been holding off in hopes of a Middle East peace deal may now "hit the trigger as the realities of a longer conflict kick in."
Investor attention will stay on the bond market. After the global selloff pushed 30-year yields to their highest level since 2007, Treasury Secretary Scott Bessent in August said that the government would increase buybacks of longer-dated bonds.
"Bessent has laid down the gauntlet to a group of sophisticated traders who don't like to be told what to do," said Matt Simpson, senior market analyst at StoneX.
"He may win a battle or two, but he'll only win the war if bond traders let him."
Markets turn cautious ahead of U.S. inflation data
Nervy markets were waiting for key U.S. inflation data on Thursday after the European Central Bank lifted its interest rates for a second time this year and oil held above $100 a barrel following U.S. and Iranian tanker missile strikes in the Strait of Hormuz.
Oil prices remained a concern for investors after Brent crude climbed above $100 a barrel on Wednesday for the first time since July, raising fears of renewed inflation pressure just as bond yields in major economies hover near multi-decade highs.
Wall Street opens lower as bond yields stay elevated
Wall Street opened the day lower again with the Dow Jones Industrial Average .DJI down 0.33% in early trading. The S&P 500 .SPX dropped 0.56% and the Nasdaq Composite .IXIC fell 0.97%. MSCI's gauge of stocks worldwide .MIWD00000PUS was down 0.69%.
Germany's 10-year bond yield DE10YT=RR held at 3.45%, the highest since the heat of the euro zone crisis in April 2011, while France's OAT yield FR10YT=RR was at another post-2008 high of 4.35%.
Away from the euro zone, the UK's 10-year GB10YT=RR and 20-year GB20YT=RR yields bobbed near respective post-2007 and 1998 highs of 5.26% and 5.87% and benchmark 10-year U.S. Treasury yields US10YT=RR ticked up to 4.91%.
ECB move, fiscal concerns and Treasury buyback in focus
The European Central Bank's decision to raise its key interest rate to 2.50% from 2.25% on Thursday came as little surprise given the recent signals and barely moved the region's stock markets .EU and the euro EUR=.
Investors were also digesting signs of looser U.S. fiscal policy after President Donald Trump promised to pay every U.S. adult a $5,000 "Trump dividend" if his party wins November's congressional elections. The Treasury Department had also announced a $6 billion buyback of longer-dated U.S. bonds that disappointed some investors.
Attention will now shift to the U.S., where key inflation data ahead of a Federal Reserve rate-setting meeting next week could inform interest rate expectations. Markets are awaiting U.S. producer price index data due at 1230 GMT, followed by consumer price inflation data on Friday.
A majority of economists polled by Reuters expect the Fed to hold interest rates steady at its September 15-16 meeting and for the rest of this year.
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