Oil hits $100 and drives global bond sell-off

0:00Hey, guys. Before we get into today's show, I wanted to give you a heads up that I'm taking some time off. You'll be in the more than capable hands of Victoria and Sonia, and I'll be back in the fall. So in the meantime, enjoy the rest of your summer.

0:16Good morning from the Financial Times. Today is Friday, July 24th, and this is your FT News Briefing. Donald Trump's tariffs are back. And as the U.S.-Iran war continues, bond investors are not happy. Markets have kind of recovered. and then all of a sudden it seems like we're mired back in the fight again. So I think that investors are very keen for this to be over. Plus the protests in India are getting Prime Minister Modi's attention. I'm Mark Filipino and here's the news you need to start your day.

0:56The Trump administration is hitting 60 countries with new tariffs of between 10 and 12.5%. They'll go into effect today when the current 10 % global duties expire. Previous levies issued by the president during his so-called Liberation Day were struck down by the U.S. Supreme Court earlier this year. The latest tariffs use a different legal justification. They're based on the outcome of an investigation by the U.S. Trade Representative's office into forced labor. The probe scrutinized countries including big U.S. trading partners such as Japan, South Korea, and Canada. The U.K. and the EU also made the list.

1:32The duties are expected to include exemptions for oil, gas, and fertilizer. It may also offer carve-outs for goods that are already hit by separate national security tariffs.

1:47Oil prices hit$100 a barrel yesterday for the first time since May. The surge came after the Houthi militants in Yemen, who are backed by Iran, hit two Saudi Arabian tankers in the Red Sea. Those attacks raised fears that the Houthis could shut down the Bab el-Mundab Strait, which has become a vital route for oil since the Strait of Ramos has been effectively shut down. As a result of oil prices surging, a global bond sell-off has gotten worse. Here to discuss is the FT's U.S. Markets Editor, Kate Duguid. Hi, Kate. Hi. How bad was yesterday's bond sell-off? So yesterday, U.S. Treasury yields, which move inversely to price, yields rose to their highest level in 18 months, which means that prices were at their lowest levels in 18 months.

2:34In Germany, yields were at their highest level since 2011. We also saw bonds in France reaching their highest level since 2009. So things were moving quite a lot yesterday. Yeah, give me a sense of how investors are feeling. So I think our sense is that investors kind of would like to move on, but that this keeps cropping up. I think that there have been a number of cycles now where investors have believed that there's a resolution around the corner. Markets have kind of recovered. Inflation expectations have fallen. Stocks have gone up. And then all of a sudden, it seems like we're mired back in the fight again.

3:12So I think that investors are very keen for this to be over. That said, it does seem like people are becoming a little bit more skeptical. Every time we have a new promise of resolution and it doesn't work out, I think that the government's involved lose a little bit of credibility with investors. So I think that there's a huge, huge, huge amount of uncertainty as to what happens next. Now, Kate,$100 a barrel for Brent crude is kind of the threshold where I think investors allow themselves to panic, but it's still shy of the high mark that we've hit this year, the$126 a barrel that we saw back in May.

3:49Is that of any comfort to investors? Yeah, it's not back at those levels yet. But the rebound this month from where it had been has been pretty blistering. I think the pace of the rally has been maybe of more concern than the actual outright levels. Goldman Sachs has said that they think that if the closure continues, that oil could rise to$120. They said that earlier this week. It does seem like at this rate, we will see a continued rally in oil prices if things remain shut down in the way that they are. Yeah, and just for the record, that rate, we started the month at around$70 a barrel. So we're up$30 over the course of just a few weeks.

4:31Higher yields on bonds, Kate, usually means that investors think that higher interest rates are coming. So what kind of pressure is this all putting on central banks? This is suggesting to central banks that inflation pressures might be longer lived than they had initially suspected. You know, when we were first talking about the conflict, I feel like central banks had kind of framed this as a temporary inflation shock that was entirely sort of attributable to the move in oil prices, but not necessarily something that would feed through to prices more broadly. And I think that that perception is starting to change a little bit.

5:09You know, at the beginning of the year, traders in the U.S. were expecting the Fed to cut interest rates maybe two or three times by year end. We now have between two and three interest rate raises priced in over the next 12 months. There's been a real, real, real sea change in where investors think inflation is headed. Kate Dugit is the FT's U.S. markets editor. Thanks so much, Kate. Thank you.

5:37Tens of thousands of protesters took to the streets of Delhi this week.

5:45They're upset with the education system, namely leaked exam papers. Police fired tear gas and beat protesters. India's Prime Minister Narendra Modi has responded by promising to establish fast-track courts to punish those responsible for the leaks. Here to help us understand the latest is the FT's South Asia Bureau Chief, Michael Stott. Hi, Michael. Hello. Michael, remind us about the protest movement that's happening. You've been on the show before to talk about this. So this began in May when an online protest movement began. It began as a sort of satire on some remarks by a Supreme Court judge who dismissed India's unemployed youth as cockroaches.

6:26And so this satirical movement emerged called the Cockroach Janta Party, which was a play on the name of Modi's party. And then it became real world in June when its leader started calling real life protests in Delhi. And those protests culminated then on Monday in a big demonstration where for the first time they managed to call out tens of thousands of young people onto the streets of Delhi to protest against problems in the education system and call for the resignation of the education minister. Michael, why are these exam links such a hot issue? I think the thing to explain is that in India, there's an enormous number of young people who are hoping to escape from poverty and get a chance for a better life through a university education and through a place at a coveted medical school or in a government service or in the police service.

7:18And the exams for entry to those institutions are very, very hotly contested. And students spend years getting coached for them. Families often borrow money to give their children a better chance in those exams. And what's happened in recent years is that questions leak online and then the exam is cancelled. And this happened this year with the exam for entrance into India's medical schools. And this meant enormous anguish for all the students who had spent a great deal of time and money preparing for these exams. And because it wasn't the first time this had happened, this generated a great deal of anger.

7:55What's Modi's response been so far? So Modi was quiet for a long time. And on Thursday, for the first time, he addressed the issue directly and said there would be stringent punishments for people responsible for leaking exam papers. and that in future there'd be a series of steps to safeguard the interests of students. But crucially, he didn't give in on the other main demand of the protesters, which was the resignation of the education minister. Does this seem to be enough at the moment to satisfy the protesters, or could things get more heated? Well, the cockroach movement swiftly dismissed Modi's concession, said it wasn't enough, and that they would continue protesting until the education minister resigned.

8:40The big question is whether they continue to grow in size and scale, whether they multiply across the country. We've seen small, limited protests in a few cities so far, but nothing on the scale of what we had in Delhi on Monday. But there is undoubtedly a lot of frustration among the nation's youth over the education system, but also over limited job opportunities. Wages for graduates have been stagnant for several years. The job market for graduates is not easy. That's not the sort of future that Indians were promised by Modi in his big development drive to make India a developed nation by 2047.

9:17So there's a bit of a gap between the rhetoric there, the aspiration, which Indians support, and the reality of this tough job market and stagnant salaries. Michael Stott is the FT's South Asia Bureau Chief. Thanks very much, Michael. Thank you.

9:38The European Central Bank voted to keep interest rates at 2.25 % yesterday. But as you heard from Kate Duguid, the pressure is still on for other policymakers to address higher prices. We're watching a few decisions next week, and interest rate rises are increasingly on the menu. Join me now to talk about what those banks might do is our Monday host, Victoria Craig. Hi, Victoria. Hey, Mark. So, Victoria, like I mentioned, I'm taking some time off, but I am still very curious about what we're going to be seeing next week in the world of monetary policy. What are we expecting? Well, expectations, Mark, really run the gamut for next week because there are three big decisions that we're watching pretty closely.

10:16The first is the Bank of England, which is on track to keep borrowing costs steady after recent inflation and jobs market data took a bit of the pressure off policymakers there. The Fed here in the U.S. is a bit of a wild card. The odds of a rate rise next week have risen to about 40 percent. And that's in large part despite cooler inflation figures and because of the renewed concerns about the Middle East conflict that you mentioned, which has caused a more than 30 percent run up in oil prices this month. And what about the Bank of Japan? They're meeting next week, too. Yeah, exactly. The third one, the Bank of Japan, is on track to buck this sort of steady-as-she-goes trend that we're kind of seeing globally.

10:57And that is because the BOJ has been on a quest to normalize interest rate policy after years of stagnation. And oddly, the global energy crisis that's pushing prices higher is allowing Japan to raise interest rates to what many expect will level off at about 1.25 percent by the end of this year. You can catch Victoria Craig right here in the podcast feed bright and early Monday morning with all the latest news to start your week. Thanks so much, Victoria. Thanks, Mark. One last thing before we go, we want to say goodbye to Fiona Simon. Fiona has been working on podcasts at the Financial Times since long before I joined, and she's been at the FT for over 30 years.

11:36Next week is Fiona's last week, and we just want to thank her for all her work. Fiona, you've been a wonderful colleague, and I hope you have a lovely retirement. Take care. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT news briefing. Check back next week for the latest business news.

12:23Thank you.

12:53explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts. Hello, I'm Monica Reinagle, host of the Nutrition Diva podcast. Summer is here, and with it, the hot and sticky weather. A morning working in the garden, or maybe on the golf course, can leave you more depleted than you realize. And plain water isn't always the most efficient way to restore the balance. That's where Liquid IV comes in. Its science-backed formula is clinically proven to hydrate faster than water alone.

13:30Whether you're exercising, playing outside, or simply surviving a summer heat wave, it's an easy way to stay hydrated. Shop now at liquidiv.com. Liquid IV, hydration that goes wherever life takes you.