Global financial markets faced a turbulent session on Wednesday as surging government bond yields, renewed US-Iran military tensions and elevated oil prices collided with persistent optimism around artificial intelligence infrastructure. The combination produced sharp divergences across regions, with UK and Asian equities under heavy pressure while US benchmarks held firmer thanks to AI-related stocks.
In London, the domestically focused FTSE 250 fell 0.8% to its lowest level since early August, and the FTSE 100 slipped 0.56% to 10,728.90 points by mid-morning. The selloff was driven in part by a sharp rise in UK borrowing costs: the 10-year gilt yield climbed to its highest level since June 2008. According to Ebury head of market strategy Matthew Ryan, higher yields increase pressure on the government's fiscal position and could raise the likelihood of future tax increases. Brent crude traded near $95 a barrel after the latest escalation between the US and Iran, pushing mining and consumer-linked shares lower. Rio Tinto and Glencore fell 1.3% and 1% respectively, while WPP dropped 2.8% and Pearson declined 2.5% after a Citigroup downgrade.
US equities were more mixed. The Dow Jones Industrial Average rose 215 points, the S&P 500 added 0.10% and the Nasdaq Composite slipped 0.05%. AI infrastructure optimism cushioned sentiment: Dell gained 6.65% after raising annual profit and revenue forecasts, and Nvidia rose 1.01%. Apple fell 0.26% and Tesla lost 0.79%. The 10-year Treasury yield briefly reached 4.814%, the highest since November 2023, before easing by two basis points. Fed Chair Kevin Warsh's emphasis on controlling inflation helped push market pricing for a September rate hike to 66% from about 37% a week earlier, according to the CME FedWatch tool.
Overseas markets were broadly weaker. The Stoxx 600 fell 0.49%, Germany's DAX dropped 0.7%, Japan's Nikkei 225 declined 2.85% and South Korea's Kospi fell 4%. Ahead of Friday's US jobs report, ADP said private employers added 38,000 jobs in August, below the 46,000 revised July figure and the 47,000 economists expected. The weaker payrolls number adds to the uncertain backdrop as investors weigh growth, inflation, energy prices and monetary policy.
