Trump rejected Iran's latest proposal over the weekend to reopen the Strait of Hormuz, wiping out nearly all of the gains accumulated last Friday when markets grew hopeful about diplomatic negotiations. Oil prices jumped immediately, expectations of rising inflation pressure once again weighed on bond markets, Asia-Pacific equities broadly declined, and US equity futures fell in tandem.
Brent crude rose more than 2%, spot gold lost the $4,180 per ounce level with an intraday drop of over 2%, and spot silver fell 4.0% intraday, approaching the $60 per ounce mark. The US 2-year Treasury yield rose 5 basis points to 4.90%, while the 10-year yield rose 4 basis points, erasing all of Friday's declines.
Rajeev De Mello, senior macro portfolio manager at Gama Asset Management, said: "Investors are once again disappointed by the lack of diplomatic progress. Previously, the market had hoped that negotiations could ease the Middle East conflict and push for the reopening of the Strait of Hormuz, but those hopes have now been dashed."
Major global asset moves:
Oil rises: Brent crude up more than 2%, WTI crude up about 2%.
Gold and silver fall: Spot silver fell 4.0% in the afternoon to $61.7 per ounce. Spot gold lost the $4,180 per ounce level, falling more than 2.5% intraday.
Global bonds broadly decline:
India's 10-year government bond yield rose 5 basis points to 7.17%.
US Treasury yields moved higher, with the 5-year yield up 5 basis points.
Japan's 30-year government bond yield rose 1.5 basis points to 3.925%.
Government bond yields in Japan, Australia, and New Zealand all rose in sync with US Treasuries, while South Korea's 3-year yield climbed to its highest level since November 2022.
Asia-Pacific markets came under pressure at Monday's open: Asia-Pacific markets came under pressure at Monday's open. South Korea's KOSPI fell more than 2.5%, with Samsung Electronics down 5% and SK Hynix down 4.4%. Japan's Nikkei 225 fell about 0.10%, and India's NIFTY 50 dropped 1.30%.
US equity futures decline: Dow futures fell about 180 points (0.4%), S&P 500 futures fell 0.4%, and Nasdaq 100 futures fell 0.7%.
Trump rejects Iran proposal, negotiation outlook remains uncertain
After Trump rejected Iran's "7-day reopening of the Strait of Hormuz" ceasefire proposal, Iranian Foreign Minister Araghchi said Iran "is prepared for a resumption of war," while also stating that the door to diplomacy has not been closed. Qatar's prime minister, serving as a mediator, acknowledged that the conflict is "becoming increasingly difficult to resolve" and that there is currently no clear path to ending it. The United States continues to escalate its blockade and sanctions, and US diesel prices have risen more than 70% since the conflict broke out, with the negotiating stalemate now transmitting into global energy markets.
According to Xinhua News Agency citing Iranian media reports on the 27th, Iranian Foreign Minister Araghchi said Iran is prepared for a resumption of war with the United States but has not yet abandoned diplomatic engagement. He said, "We are fully prepared for a resumption of war," while adding, "We are also ready for diplomatic contact at any time." "This depends on the choice of US President Trump."
Oil price surge reignites inflation concerns, bond markets under broad pressure
According to Bloomberg, tensions in the Middle East have driven oil prices up by about 75% cumulatively this year.
The prompt spread on Brent crude's front-month contract has widened to a backwardation of about $7.75 per barrel, significantly wider than about $4 a week earlier, indicating that market concerns over near-term supply tightness have clearly intensified. Currently, Brent crude is up more than 2%, and WTI crude is up about 2%.
Persistently high energy costs continue to feed through to inflation, raising expectations that the Federal Reserve will raise rates further. According to Bloomberg, the average global bond yield has already surpassed 4% last week for the first time since 2007. Traders have now fully priced in at least one more 25 basis point rate hike by the Fed this year — the Fed already delivered its first hike since 2023 this month.
Ed Yardeni, president of Yardeni Research, wrote: "The rapid rise in global 2-year government bond yields shows that major central banks need to raise rates further to cope with the inflation shock caused by prolonged high oil prices amid the renewed escalation of the Middle East conflict. Unfortunately, higher interest rates also further worsen the massive deficit outlook for governments around the world."
Government bond yields in Japan, Australia, and New Zealand all rose in sync with US Treasuries, while South Korea's 3-year yield climbed to its highest level since November 2022.
Asia-Pacific stocks slump, US equity futures move lower
Asia-Pacific markets came under pressure at Monday's open. South Korea's KOSPI fell more than 2.5%, with Samsung Electronics down 5% and SK Hynix down 4.4%. Japan's Nikkei 225 fell about 0.10%, and India's NIFTY 50 dropped 1.30%. Australia's S&P/ASX 200 edged up 0.11%.
Dow futures fell about 180 points (0.4%), S&P 500 futures fell 0.4%, and Nasdaq 100 futures fell 0.7%.
US stocks delivered a strong overall performance last week — the Dow edged up 0.3%, ending a three-week losing streak; the S&P 500 rose 1.2%, and the Nasdaq Composite gained 2.1%, both marking their best weekly performance since early August.
Gold and silver tumble, dollar strengthens
Gold fell about 2.5%, breaking below the $4,200 per ounce mark, while spot silver fell as much as 4% intraday to $61.7 per ounce.
Rising rate expectations dampened the appeal of non-yielding precious metals, while the dollar strengthened against most major currencies.
Market focus shifts to this week's economic data
Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore, said the Middle East stalemate "is likely to remain the market's focus" until the Fed's preferred inflation gauge and employment reports are released later this week.
Key data this week includes the August Personal Consumption Expenditures (PCE) price index due on Wednesday, US manufacturing data on Thursday, and the closely watched September nonfarm payrolls report on Friday.
Treasury Secretary Bessent struck a relatively dovish tone, saying policymakers should keep an "open mind" on interest rates, as productivity gains from artificial intelligence and deregulation may help curb inflation.
Vey-Sern Ling, managing director at Union Bancaire Privee, said: "As long as the Iran conflict continues, the market will face the prospect of higher inflation, rate hikes, and tighter financial conditions. But given that valuations are already under pressure and AI-driven earnings continue to climb, investors should focus on buying opportunities positioned with a long-term perspective."
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