Trump rejected Iran's latest proposal to reopen the Strait of Hormuz, and the Middle East diplomatic deadlock quickly reversed the market optimism from last Friday.
Brent crude rose more than 2%, gold fell below $4,200, silver dropped more than 4%; Asia-Pacific stocks broadly declined, with South Korea's KOSPI falling more than 2%; global bond markets came under pressure, and the U.S. 2-year Treasury yield rose to 4.90%.
The market focus will shift to this week's PCE inflation data and nonfarm payrolls report.
Trump's weekend rejection of Iran's latest proposal to reopen the Strait of Hormuz erased almost all of the gains accumulated last Friday when expectations for diplomatic negotiations had risen.
Oil prices jumped immediately, expectations of rising inflationary pressure once again weighed on the bond market, Asia-Pacific stocks broadly fell, and U.S. equity futures declined in tandem.
Brent crude rose more than 2%, spot gold lost the $4,180/oz level and fell more than 2% during the day, while spot silver fell 4.0% intraday, approaching the $60/oz mark.
The U.S. 2-year Treasury yield rose 5 basis points to 4.90%, and the 10-year yield rose 4 basis points, wiping out all of Friday's decline.
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 rose: Brent crude gained more than 2%, and WTI crude rose about 2%.
Gold and silver fell: spot silver fell 4.0% in the afternoon to $61.7/oz. Spot gold lost the $4,180/oz level, falling more than 2.5% intraday.
Global bonds broadly fell: India's 10-year government bond yield rose 5 basis points to 7.17%. U.S. 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 tandem with U.S. Treasuries, while South Korea's 3-year government bond yield rose to its highest level since November 2022.
Asia-Pacific markets 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%, Samsung Electronics dropped 5%, and SK Hynix fell 4.4%. Japan's Nikkei 225 fell about 0.10%, and India's NIFTY 50 dropped 1.30%.
U.S. equity futures declined: 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 "ready for the resumption of war," while also saying the door to diplomacy has not been closed.
Qatar's prime minister, whose country is mediating, 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. U.S. diesel prices have risen more than 70% since the outbreak of the conflict, and the negotiating deadlock is transmitting through to 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 the resumption of war," while adding, "We are also ready at any time for diplomatic contact." "This depends on the choice of U.S. President Trump."
Oil price surge reignites inflation concerns, bond markets under broad pressure
According to Bloomberg, Middle East tensions have driven oil prices up about 75% cumulatively so far this year. The prompt spread for nearby Brent crude contracts widened to a backwardation of about $7.75 per barrel, significantly wider than about $4 a week earlier, showing that concerns about near-term supply tightness have clearly intensified. Currently, Brent crude is up more than 2%, and WTI crude is up about 2%.
High energy costs continue to feed through into inflation, raising expectations that the Federal Reserve will raise interest rates further. According to Bloomberg, the average yield on global bonds last week exceeded 4% 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 raised rates this month for the first time since 2023.
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 after the renewed escalation of the Middle East conflict. Unfortunately, higher interest rates also further worsen the outlook for the massive deficits of governments around the world."
Government bond yields in Japan, Australia, and New Zealand all rose in tandem with U.S. Treasuries, while South Korea's 3-year government bond yield rose to its highest level since November 2022.
Asia-Pacific stocks slump, U.S. equity futures lower
Asia-Pacific markets came under pressure at Monday's open. South Korea's KOSPI fell more than 2.5%, Samsung Electronics dropped 5%, and SK Hynix fell 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%.
U.S. stocks overall performed strongly last week — the Dow rose slightly by 0.3%, ending a three-week losing streak; the S&P 500 rose 1.2%, and the Nasdaq Composite rose 2.1%, both posting their best weekly performance since early August.
Gold and silver tumble, dollar strengthens
Gold fell about 2.5%, breaking below the $4,200/oz mark, while spot silver fell as much as 4% intraday to $61.7/oz. Rising rate hike 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 deadlock "may remain the market focus" until the Fed's preferred inflation gauge and the jobs report are released later this week. Key data this week include: the August personal consumption expenditures (PCE) price index due on Wednesday, U.S. manufacturing data on Thursday, and the closely watched September nonfarm payrolls report on Friday.
Treasury Secretary Bessent struck a relatively moderate tone, saying policymakers should keep an "open mind" on interest rates because 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 current valuations are already under pressure and AI-driven earnings continue to climb, investors should focus on buying opportunities positioned with a long-term perspective."
Risk disclaimer and disclaimer
Markets carry risk, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment based on this is at one's own risk.
Comments