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US stocks drop as 10-year Treasury yield reaches highest level since 2007
On 'Wednesday', US shares dropped and 10-year Treasury yields rose to their highest levels since 2007. This was after data revealed that US business activity had risen?to more than five-year highs in September. Fueled by an increase in new orders. S&P Global said that its US Composite PMI Output Index (which tracks manufacturing and service sectors) increased to 58.4 in this month. This is the highest level recorded since July 2021. Will Compernolle is a macro-strategist at FHN. The yields are at multi-year highs due to traders pricing in the possibility of more Federal Reserve interest rate increases, while inflation remains stubbornly above the central banks' 2% target. The yield on the 2-year Treasury bond, which is sensitive to interest rates, rose by 11.4 basis points, from 4.947% to 4.891%. This was the highest level since May 2024. The benchmark 10-year rate jumped 13.89 basis point to 5.106%. This is the highest yield since 2007 and its biggest increase in a single day since April 2025. Fed funds futures traders now price in a 66% probability of an October rate increase, up from a 53% chance earlier in the day. Fed Governor Michael Barr, who added to the hawkish tone, said the central bank had taken an important step to "recalibrate", short-term borrowing rates to bring down inflation. He also indicated that future rate increases will be necessary. Analysts said that a break through technical levels? amplified the rate rise. Compernolle stated that "it appears for now that the technical boundaries which had held yields in check for the past few weeks have just been?broken. Once this momentum begins, it could make traders very reluctant to get in front of the market." In the midst of the recent bond market crash, the US Treasury Department saw very low demand for its auction of $70 billion in 5-year notes. The notes sold at their highest yield since 2007. Stocks fell as yields rose. Rates can affect equities by increasing the cost of corporate investment as well as by luring investors back to the bond market. The Dow Jones Industrial Average dropped 0.68%, and the S&P 500 fell 0.75%. The Nasdaq Composite fell 1.13% after reaching a record-high on Tuesday. The pan-European STOXX 600 Index fell by 0.44% and an MSCI global index fell by 0.73%. This ended four days of consecutive gains. Focus on GEOPOLITICS The mood was further dampened on Wednesday by the comments of Iranian leaders, who highlighted that US and Iran are still far apart in their efforts to reach a peace agreement. After Iranian President Masoud Pezeshkian said that Tehran would not bow to US pressure, a senior Iranian official stated that diplomacy must continue despite the fact the two sides are still divided over how to end the conflict. In his speech at the same forum, President Donald Trump threatened on Tuesday to "annihilate Iran", but also stated that his envoys held productive discussions with mediators who were seeking to end conflict. Cole Smead is the CEO and portfolio manager of Smead Capital Management. He said, "We have been through a number of starts and stoppages like this." We're in an incredibly momentum-driven market. "I don't believe most people are comfortable with stepping into the way of headlines." US crude climbed 2.3% to $92.60 per barrel. Brent rose 4.28% to $103.50 a barrel. Investors also look forward to a meeting between Trump and Chinese president Xi Jinping, which is expected to take place in 'Washington. There, tensions regarding trade, technology, and Tehran will be played out amid pomp and ceremony. DOLLAR GAINS The prospect of higher rates boosted the dollar's value against the Canadian, British and Euro dollars to new highs. The euro fell 0.55% at $1.1384, and reached $1.1367 - the lowest level since July 28. Dollar was 0.61 percent stronger against yen, at 158.33. Speculators were wary that a push beyond 160.00 would invite more Japanese intervention. Spot gold dropped 1.64%, to $4283.40 per ounce.
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White House denies reports that the US was considering a ban on diesel exports
A White House official denied on Wednesday a report that claimed the US was preparing to ban diesel exports for 90 days in order to curb record fuel prices. The price of diesel has risen to a record high of $6.50 per gallon due to the conflict in Iran and Ukraine, which is affecting oil and fuel deliveries. This poses a risk for President Donald Trump as he prepares for the midterm elections. US Energy Secretary Chris Wright stated earlier that such an ban would not be effective and could increase gasoline and jet fuel costs. The US is currently discussing voluntary measures. Wright responded to the Politico article that said the US is planning a 90-day export ban. He said, "Nobody?is?considering?a ban on fuel shipments." Wright did not provide any further details.
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Official: Colombia could adopt Argentina's tax incentives to encourage investment
Armando Cuello, the Deputy Minister of Energy in Colombia, said that the country could adopt a model for tax incentives similar to one used in Argentina to 'attract large scale investments in energy and mining. Cuello, speaking at an economic forum in Bogota said Colombia was studying if it could replicate "aspects" of Argentina's Incentive Regime for Large Investments (RIGI), which offers tax, foreign exchange and customs benefits to major projects. The program was launched in 2024 by the Argentine president Javier Milei. Cuello stated that there was a 'political will' to create an investment-friendly environment, which he knew would take time. Abelardo De La Espriella, the Colombian president, announced that his government will resume signing hydrocarbon exploration contracts, and allow fracking. This is a reversal of a ban placed by former President Gustavo Petro. Cuello stated that the lack of?new project development during the previous administration had pushed Colombia's?energy sector into crisis. He said that the country's?deficit in power had increased to 8.6%, from?7.2% just a week before. He said that the government is taking every?possible step to prevent widespread?power outages during?the El Nino phenomenon affecting Latin America.
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US diesel futures drop after White House denies export ban report
US ultra-low sulfur?diesel?futures fell 4% on?Wednesday?after Politico reported the White House was preparing a 90-day ban on diesel exports, which Trump Administration denied. According to AAA, the average US diesel price is nearing record levels at $6.52 per gallon. This puts pressure on farming, transportation, and other industries that depend on this fuel. The wars in Iran and Ukraine has led to a sharp drop in exports by some of the largest?producers, such as Russia and Saudi Arabia. White House officials said that a report that the US is considering a temporary flat export ban wasn't correct. The October futures contract traded at $4.7437 per gallon last, down 4% after falling more than 6% earlier. Trump announced on Tuesday that he supports a ban of diesel exports. Republican candidates running in some of the most tight races in November had called for this measure to help curb fuel prices. Diesel's surge' has coincided with a drop in US?diesel stocks to less than 95 million barrels or 13% below the seasonal average of the last five year. US Energy Secretary Chris Wright stated on Wednesday, however, that a ban on US diesel exports will not work and may increase gasoline and jet fuel costs. Wright stated that the administration is working with the refinery industry to increase supply of US diesel in "a simpler, voluntary and cooperative manner, without using blunt tools that would reduce the refining process." He said that any plan will be voluntary. He didn't elaborate on the plan and said that no decisions had been taken. A ban on exports of diesel would increase prices for?diesel worldwide. After Trump's remarks, the European diesel?refining industry saw its margins reach a new record on Wednesday. Analysts have warned that it could also hurt the margins of US refineries and push prices down in the United States. If a ban were to be imposed, refineries would most likely reduce the amount of crude that they process. Analyst and traders say that if US refineries reduce runs, this would lead to a reduction in the supply of gasoline, and other products. This could potentially push up prices for these fuels. U.S. Interior Secretary Doug Burgum stated earlier this month that a ban on oil, diesel or gasoline exports may lead to retaliatory measures from other countries. This could harm consumers in California, whose energy imports are partially dependent on.
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De Laurentiis wished to "shoot" Infantino then applauded the World Cup show
Aurelio De Laurentiis, Napoli's President, has a talent for turning football politics into cinema. FIFA President Gianni Infantino was cast as both villain and hero in his latest monologue about the state of football. De Laurentiis, speaking after receiving the lifetime achievement award of Italy's Foreign Press Association, did not directly attack Infantino. The Italian has been called to resign following an investigation into a plan in which private investors could have purchased shares for the World Cup or other competitions. The Napoli owner instead offered a "barbed" assessment of FIFA's rise to prominence and its global reach before admitting that he was impressed with the staging of the 'World Cup' this year. De Laurentiis, speaking at the Rome ceremony, said: "Infantino does his work from his own point of view." What are we to say about a former secretary who, after becoming president, is allowed to travel the world with the FIFA badge and meet Trump, Putin, and everyone else? We must say that he is just doing his job. "I wanted to shoot Infantino, but after seeing how he organised things, I decided to hold my hand up and say, 'Well done'." EUROPE FOOTBALL POWER STRUCTURES De Laurentiis' Napoli, which he rescued from bankruptcy over two decades ago, has won two Serie A championships and five domestic cups. He was less kind about?European soccer's power structure. He said: "Sport in Europe is in crisis, not in the United States. The shining beacon is still there. What is the purpose of the Europa League? What is the Conference League? The Conference League is a way to collect votes to re-elect those in 'all those organisations that are above any legislative oversight because they do what they want, and if you even raise your head, they will immediately cut it off. "Look what's happening at FIFA and what has happened at UEFA over the years. A series of videos from a few year ago tells the tale of FIFA's troubles ..." De Laurentiis reiterated his desire that Napoli have a "family-friendly" stadium, and said that hard-core Ultras had "no place" in this vision. "I'm against ultras. Football must be about passion and education for children." De Laurentiis pointed out that you can't have 'ultras,' or hooligans, who are modeled after the Mafia. It's a serious problem until our police chiefs, and ministers of the government, get it under control.
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India reduces edible oil import duties to lower prices before festivals
India's government announced in a late-Wednesday notification that it had cut the basic import duty for crude and refined edible oil including palm oil, soybean oil and sunflower oil. The move was made to reduce prices during the busy festive season. The price of vegetable oil in India has risen by nearly 20% in the last year. The duty reduction is expected to reduce prices and increase consumption at major religious festivals between September and November, with sweets, snacks and fried food. According to traders, the increased demand from India would help support Malaysian palm and US soyoil benchmark futures. The notification stated that the basic import duty for crude palm oil, crude soyoil, and refined palm oil has been reduced from 10% to 5%. It said that the import duty for?crude' sunflower oil was reduced from 10% to zero, and that the duty on refined sunflower oils had been reduced from 32.5% to 22.5%. In addition to the basic customs duty on edible oils imported into India, there is also the Agriculture Infrastructure and Development Cess and Social Welfare surcharge. Crude palm and crude soyoil import duties will be reduced to 11% from 16.5%. Crude sunflower oil import duties will also be cut from 16.5% to 5.5%. Last week, it was reported that India was planning to reduce import duties on edible oil to give relief to consumers over the festive season. Sandeep Bajoria of Sunvin Group in Mumbai, the chief executive officer of a vegetable oil brokerage, said that refiners held off on purchases because they hoped to see a reduction in import duties. However, now, they plan to import more products due to the festival season demand. India imports palm oil, sunflower oil and soya oil mainly from Malaysia, Indonesia and Argentina. Aashish Acharya said that Sunflower Oil will be the most benefited by the duty cut. This will make it more appealing to refiners, and could take some demand from palm and soyoil.
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Investors start to worry about 6% Treasury yields as 5% Treasury yields begin to lose their shock value.
Years ago, 5% of the benchmark US 10-year Treasury?yield had been regarded as the point where global financial markets began to experience turbulence. This threshold is becoming less of a ceiling, and more like a waypoint. This month's breaching of 5%, something that has only happened briefly in recent decades, has forced investors into a?unsettling thought:?What happens if 6% becomes the number that keeps them up at night? This theory hasn't been tested enough by the latest move above 5%. Mike Bell, BlueBay Asset Management’s head of Market Strategy, says that it was always a psychological indicator and not a tripwire. Bell explained that people think there is a magic number at which Treasury yields become a problem. "But it's not an absolute number but a relative one," Bell said. It is important to compare Treasury yields with other investment metrics. This includes the earnings yield of stocks. Bell claims that the relationship is approaching an inflection, which could set up a selloff of stocks. The past offers some guidance. MSCI's world stock index lost half its value when the 10-year Treasury yield crossed 5%. This was right before the global financial crisis. It suffered a similar decline less than a decennium earlier, when a 6.8% increase helped burst the dotcom boom. Analysts at JP Morgan say that a "key shift" in the global economy is one reason why the pain point could be back above 5%. AI, healthcare, and services are playing a larger role. These firms continue to spend and expand, regardless of how high borrowing costs are. JP Morgan stated that the traditional interest rate channel "looks materially less bound" and the "breaking-threshold" of the stock markets could be "significantly higher, possibly?in a range of 5.5%-6.0%", referring to the views expressed by some of its major investors during one of their most recent conferences. REPRICING - a firm price A shift from 5% up to 6% in the $29 trillion Treasury market would be a 'profound adjustment of the global capital cost. A Treasury yield of 6% would indicate either significant higher inflation expectations, growing concern about US fiscal sustainability or a conviction that rates will remain high for years. Austan Goolsbee, a Federal Reserve policymaker, said that he did not know if markets would react differently if 5% yields were extended for a longer period than in the past. Invesco's global head of asset-allocation research, Paul Jackson, explained that investors are focused on Treasury yields because they represent the risk-free benchmark for the world. At above 5%, investors have the opportunity to lock in their highest returns since 2007. Jackson's calculations show that world stocks begin to fall when the 10-year bond yield has traded at 4.72% on average for 12 months, and then increases. The tipping point is still a long way off - the average 12-month yield is around 4.34%. But Jackson has already started to reduce his stock holdings and put some of his money in government bonds, hoping to take advantage of the high yields. He said that if Treasury yields continue to rise, the risk is that in a year's time the stock market will be lower. Emerging Questions When US yields rise, emerging markets that have been on a "hot streak" in recent years are usually "among the first victims". Dollar-denominated investments become more appealing when Treasury returns are higher. This drains capital from EM economies, and can push hard-up nations into crisis if their dollar-denominated loans spiral out of control. Last week, data on investment?flows showed the largest exodus of EM bond funds for months. Billions were also withdrawn from equity fund. The issuance of emerging-market sovereign bonds has also been notably lighter this month. Alison Shimada is the Head of Total Emerging Markets Equity at Allspring Global Investments. She said that while the picture was not ideal, it was still "constructive" because for now, nothing "horribly went wrong". The biggest psychological risk is the most likely. Investors will begin to question whether 6% can be achieved, and the discussion will move beyond a temporary increase in yields. The debate shifts to the possibility that?the era of abundant liquidity and ultra cheap money is over, forcing global asset values to adjust to a permanent higher cost capital. Premier Miton CIO Neil Birrell stated that while the stock market is not showing signs of collapse right now, this could be because investors haven't yet plugged in 5% plus yields to their long-term profit forecasting model. Birrell stated that "the markets appear fine until everyone runs their valuation models again." "The numbers will come out in the end."
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Microsoft invests $10 billion plus in the Gulf with a focus on resilience
Microsoft plans to invest over $10 billion in the United Arab Emirates, Saudi Arabia and Qatar between now and 2030. This will include cloud and AI infrastructure. As the Iran War continues, the US tech giant is making digital resilience an important part of its strategy in the region. Brad Smith, Vice-Chair and President of Microsoft, said that the investment was a reflection of both the "ongoing construction of infrastructure" and the "expansion of operations in the area". Gulf countries are investing billions in AI to diversify away from oil and natural gas. They believe that the abundance of land?and cheap energy will attract hyperscalers like Microsoft. The war and its uncertainty, as well as the attacks on data centres like Amazon's AWS facilities in Bahrain and the UAE, pose challenges. "We are sustaining the investments that we had planned to make before this conflict began, and in fact?we are adding to them. Smith said that the spending plan was aggressive. Microsoft, he said, had provided support to local partners, including digital resilience assessments even during the first week of conflict that began on 28 February. DIGITAL RESILIENCE Microsoft has now begun to assist the Gulf States in areas like readiness and data protection, as part of an initiative for digital resilience. Smith stated that it was not possible to provide a breakdown by country or project of the planned investments. Smith cited factors such as security. The UAE has been largely spared attacks since May. However, other Gulf countries continue to be threatened. Microsoft plans to invest $400 million by 2030 in the Middle East for subsea and terrestrial connectivity. Microsoft is also strengthening its partnership with national AI firms, such as Abu Dhabi's G42. Microsoft has invested $1.5 billion in the company for a minor stake, which will be?transferred to Microsoft by 2024. This will give Microsoft a seat on the board currently held by Smith. Microsoft works with Saudi Arabia’s Humain and Qatar’s Qai “in selected areas which are priorities for them,” he said. He noted that Microsoft does not plan to invest capital in these firms.
Analysts say that the US ban on diesel exports would harm global fuel markets
Analysts said that a US diesel export ban would be a self-defeating measure. It would not only do little to ease high US fuel costs, but it could also worsen economic disruptions and supply problems around the world.
Donald Trump, the US president, reportedly said on Tuesday that he supported a ban. According to AAA, the average US diesel price has risen to a record $6.51 per gallon. Diesel is essential to the global economic system because it powers the transportation equipment, farm machinery and machinery that makes and moves goods.
Fuel prices are high, and they increase the cost of transporting everything from consumer goods and groceries to industrial materials. This is already a major problem for Trump and Republicans as we head into the midterm elections in November.
Why are diesel prices high?
The price of diesel has risen around the globe due to a combination of factors, including supply disruptions caused by the Ukrainian strike on Russia's refining facilities, damage inflicted on Middle East refineries as a result the US-Iran conflict, and low inventory.
In July, Russia, the second largest exporter in the world, banned diesel imports until at least September.
The US-Iran War has also affected or stopped diesel exports through the Strait of Hormuz, and in the Red Sea.
In August, the US exported a record number of barrels per day (bpd) of diesel. This is up from 1 million bpd before the Iran War began in February.
According to Kpler, the top buyers are Brazil, Chile Mexico, Peru, Morocco France and United Kingdom.
Will US Fuel Prices Rise or Fall After 'THE Ban?
A ban on crude oil would probably cause US refineries reduce the amount they process.
Analyst and traders have said that if US refineries reduce runs, they will also lower the amount of gasoline produced and increase prices.
Capital Economics wrote in a report that an oil ban could be counterproductive because a diesel surplus in the US would force refiners in America to reduce their supply of oil products. This could happen within weeks.
The American Petroleum Institute (API), a major trade association, warned that restricting US diesel exports could have a devastating impact on fuel markets both in the US as well as abroad. It would also destabilize refinery operation and worsen a global crisis of refining.
Energy economist Philip Verleger said that a ban on the use of ethanol could increase world prices up to 100%.
WHAT WOULD A ban affect?EUROPE and ASIA?
The European diesel price has reached record levels and the Asian prices are not far behind.
The European Union would be a net importer of diesel, and have limited options to meet the demand, given the Russian ban.
Europe's dependence on US diesel will increase in 2026 as Middle Eastern exports to Saudi Arabia and United Arab Emirates decline.
Consultants FGE NexantECA predicted that global prices would rise further because buyers in Latin America and Europe would have to compete with each other for a limited pool of supplies.
Citi analysts warned that even a partial ban in the US could cause product shortages across Europe, South America and Australia, as well as Africa.
The market was not cooled by higher?Chinese Diesel exports in July or August, according to the report.
Asia, which is home to some of world's largest?refinerys complexes, produces typically more diesel than they need. India, as the region's main supplier, may be the first to increase exports to Europe.
WHAT ARE THE IMPLICATIONS POLITICALLY AND GEOPOLISTICALLY?
Some Republican Senate candidates who are in the most competitive races for the November 3 elections have called on the administration to implement an export ban to reduce the high cost of goods for Americans.
Jim Mitchell, Director of Oil Trading Analytics at Wood Mackenzie, said that the report was more of a political sounding than a real reality.
Mitchell also said that the move would harm some of America's key allies in Europe.
Verleger said that the world would no long view the United States of America as a reliable energy source.
(source: Reuters)