World stock markets ended August on a cautious note due to renewed conflict between the U.S. and Iran, which drove oil prices up and led to higher borrowing costs in Germany and Japan. Brent oil futures climbed above $90 a barrel after U.S. forces struck Iranian launchers, prompting Iran to retaliate against U.S. forces in Jordan and claim a tanker hit in the Strait of Hormuz. President Trump's subsequent post about Kharg Island being "blown to smithereens" added to the geopolitical tension. This 2% jump in oil prices fueled concerns about persistent inflation and the likelihood of further interest rate hikes from major central banks.
The hawkish speech by Federal Reserve Chairman Kevin Warsh at Jackson Hole on Friday, emphasizing the need to control inflation, significantly impacted market expectations. The probability of a September Fed rate increase rose to 57%, causing short-term Treasury yields to jump and flattening the yield curve. Analysts from JPMorgan and Barclays now anticipate rate hikes, with Barclays expecting 25 basis point increases in both September and December. Economists are closely watching the upcoming U.S. August payrolls report and consumer price data in September, with a significant deviation from the expected 58,000 job increase potentially altering September rate hike expectations.
In terms of market performance, Europe's STOXX 600 index opened lower, and U.S. stock futures were flat to slightly weaker. In Asia, Japan's Nikkei slipped 0.1%, and MSCI's world stock index was marginally lower. Two-year Treasury yields held at 4.34% after a nearly 12 basis point jump on Friday, while 30-year bond yields were more contained at 5.20%. Despite the broader market caution, some S&P 500 components saw increases, such as Tesla (+4.32%) and Crowdstrike Holdings, Inc. (+3.79%), while others experienced significant declines, including PG&E Corporation (-20.09%) and Edison International (-23.07%).
