Global stock markets closed August on a cautious note as renewed military clashes between the U.S. and Iran pushed oil prices higher, increasing concerns about inflation and further interest rate hikes. Brent crude futures rose $2.39, or 2.71%, to settle at $90.49 a barrel, while U.S. West Texas Intermediate crude climbed $2.36, or 2.83%, to settle at $85.76. This surge in oil prices, along with hawkish remarks from Federal Reserve Chairman Kevin Warsh at Jackson Hole, intensified expectations of interest rate increases from major central banks. Fed funds futures traders are now pricing in 65% odds of a September rate hike, up from around 35% before Warsh's comments, and the European Central Bank is also widely expected to raise rates in September.
Bond yields saw a significant rise, with the benchmark U.S. 10-year Treasury note up 3.6 basis points at 4.758%, hitting its highest since January 15, 2025. German and French 2-year bond yields also climbed, and Japan's 2-year government bond yield reached a 31-year high. This global bond sell-off was partly attributed to investors digesting the escalation in the U.S.-Iran conflict and the subsequent jump in oil prices. The dollar index edged lower by 0.24% to 99.43, while the yen strengthened 0.2% to 159.77 per dollar, following suggestions of a potential Bank of Japan interest rate hike in September.
On Wall Street, the Dow Jones Industrial Average fell 374.09 points, or 0.70%, to 53,185.90, the S&P 500 fell 25.62 points, or 0.33%, to 7,686.14, and the Nasdaq Composite fell 31.53 points, or 0.12%, to 26,370.89. The pan-European STOXX 600 was down 0.6% at 651.1 points. Despite the day's losses, major indexes still posted monthly gains for August, with the Nasdaq climbing 3.9% and the Dow securing its fifth consecutive monthly advance. Analysts noted that the market is beginning to feel the weight of climbing yields and is entering what is typically a challenging month for stocks.
