Oil, Treasury yields turn higher as stocks falter

By Pete Schroeder

Sept 9 (Reuters) - Brent crude prices surged past $100 a barrel on Wednesday and the yield on 10-year Treasury debt hit its highest level since November 2023, as Middle East and inflation concerns weighed down Wall Street.

Brent crude was at $100.27 per barrel in midday trading, up 2.4% on the day, breaching the symbolic price level for the first time since July 24, after Iran said it fired ballistic missiles at a U.S. base in Jordan and both sides claimed to have attacked vessels, raising worries about oil supplies from the region. [O/R]

At the same time, yields on benchmark U.S. 10-year notes rose 3.26 basis points to 4.837%, hitting levels not seen since November 2023, after the Treasury Department announced it would buy up to $6 billion in 10-to-20-year government bonds. The buyback was higher than the $4 billion the Treasury had signaled earlier, but some analysts had expected an even larger purchase as part of a bid to support longer duration bonds. 

Stocks globally were lower amid the Middle East turmoil and looming actions from several central banks, including the Federal Reserve. All three major U.S. indices were lower in midday trading, with the Dow Jones Industrial Average down 0.52%, the S&P 500 lower by 0.39% and the Nasdaq Composite falling 0.61%.

MSCI's gauge of stocks across the globe fell 0.42%. 

"Brent breaking above $100 is a major psychological milestone for markets, but the bigger concern is what this means for inflation. A prolonged oil shock could keep price pressures elevated and complicate the path for central banks that are already navigating a difficult policy environment," said Lukman Otunuga, head of market research at FXTM.

CENTRAL BANK DECISIONS AHEAD

The euro edged higher ahead of the European Central Bank's policy decision on Thursday, with markets widely expecting a hike amid inflationary pressures from the Iran war. The currency reached a more than one-week high of $1.16493. 

The yen strengthened towards the nearly seven-month high touched against the dollar on Tuesday as traders exited short positions in the Japanese currency. Expectations are building for faster Bank of Japan rate hikes and a potential rush of repatriation of Japanese capital.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.03% to 98.75. 

U.S. producer and consumer price reports are set to be released later this week, with policymakers looking for further evidence that inflation pressures are continuing to cool.

The latest Reuters survey of economists found about 70% expect the Federal Reserve to keep rates steady at its rate-setting meeting next week, but that certainty is below the 90% expectation of steady rates in August.

"Financial markets remain genuinely divided over whether the FOMC will raise rates at next week's September meeting, an unusual state of uncertainty this close to a decision date," said Matthew Ryan, head of market strategy at global financial services firm Ebury.

Gold gained 1.5% to around $4,417 an ounce. [GOL/]

(Reporting by Kevin Buckland, Sruthi Shankar and Pete Schroeder; Editing by Toby Chopra, Ros Russell, Chizu Nomiyama and Deepa Babington)