Key Takeaways
- Brent futures rose 2.1% to $106.49 a barrel, while US crude futures added 1.5% to $93.84 a barrel.
- US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, keeping markets on edge.
- Central banks, including the Reserve Bank of Australia, are expected to raise interest rates.
Global share markets experienced a mixed performance on Monday, with oil prices surging and bond yields rising amid heightened tensions between the United States and Iran. Brent futures climbed 2.1% to $106.49 a barrel, marking a significant increase of nearly 18% for the month. US crude futures also gained 1.5% to $93.84 a barrel, reflecting the ongoing geopolitical uncertainties affecting the energy markets.
In a statement, US President Donald Trump dismissed an Iranian proposal to reopen the Strait of Hormuz, stating that Tehran was merely desperate to make a deal. Despite the rejection, Trump indicated that talks would continue this week, though Iran showed no signs of altering its proposals. This development has kept markets on high alert, with investors wary of potential disruptions to oil supplies.
The surge in oil prices has led to a rise in diesel prices to all-time highs, posing a significant risk of inflation becoming embedded in pricing and wage decisions. Central banks, including the Reserve Bank of Australia, are expected to tighten monetary policy. The Reserve Bank of Australia is scheduled to meet on Tuesday, with markets anticipating a 66% chance of a second consecutive rate hike by the Federal Reserve in October, with around 90 basis points of tightening priced in for the next year.
Despite the rise in bond yields, strong US economic data has supported expectations for robust corporate earnings. The Atlanta Fed’s GDPNow measure is forecasting growth of 5.0% for the current quarter. This positive outlook has underpinned equity prices, which remain close to record levels. Activity in Asia and Europe has also shown resilience, partly due to the boom in AI investment. Bruce Kasman, chief economist at JPMorgan, noted, 'The global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades.'
In Asia, Japan’s Nikkei index remained flat, while the volatile South Korean stock market slid 2.4%. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.6%, and Chinese blue chips fell 1.4%, down more than 5% for the month. On Wall Street, S&P 500 futures declined 0.3%, while Nasdaq futures dropped 0.5%. In Europe, EUROSTOXX 50 futures gained 0.4%, while DAX and FTSE futures added 0.3% and 0.2% respectively.
Yields on 30-year Treasuries nudged up to 5.5185%, near their highest since 2004, having climbed 27 basis points just this month. Two-year yields have surged 55 basis points this month in anticipation of further Federal Reserve hikes. Mark Cabana, a rate strategist at Bank of America, warned that the repricing of bond yields may not stop until there is clear evidence that financial conditions have become sufficiently restrictive. This development is particularly concerning as tech firms are borrowing billions to fund their AI initiatives.
The ongoing geopolitical tensions and the rise in energy prices are expected to continue to impact global markets in the coming weeks. Investors are closely monitoring developments in the US-Iran relationship and the potential for further rate hikes by central banks.
The global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades.
Bruce Kasman, Chief Economist at JPMorgan
The repricing may not stop until there’s clear evidence that financial conditions have become sufficiently restrictive.
Mark Cabana, Rate Strategist at Bank of America
