Bonds under pressure as stocks tumble amid UK gilt worries and US policy uncertainty

Global financial markets faced turbulence as bond yields soared and stocks fell, driven by concerns over rising inflation, reduced chances of interest rate cuts, and uncertainty surrounding U.S. President-elect Donald Trump’s economic policies. UK gilts saw sharp selloffs, pushing yields to 16.5-year highs, while the pound dropped to its lowest level since November 2023. Meanwhile, the U.S. dollar remained strong near a one-year high, buoyed by expectations of limited Federal Reserve rate cuts and signs of resilience in the U.S. economy.

European and Asian equities reflected the fragile market sentiment, with major indices posting losses. Hong Kong’s Hang Seng and China’s blue-chip stocks fell amid deflationary concerns despite government stimulus, while Japan’s Nikkei closed lower due to profit-taking in chip-related shares. The U.S. stock markets remained closed for former President Jimmy Carter’s funeral, but all eyes are on Friday’s payroll report for hints about the Fed’s policy direction.

Commodity and currency markets also reacted to the global financial volatility. Oil prices edged lower due to a strong dollar and inventory builds, while gold steadied near recent highs. China’s central bank intervened to stabilize the yuan amid deflationary pressures, signaling a commitment to currency stability. Bitcoin held steady after a two-day slump, reflecting broader unease in the global financial landscape.