Global stock markets opened the week on a cautious note, with indexes falling as military clashes between the US and Iran reignited, driving oil prices up by over 2%. This geopolitical development, combined with hawkish remarks from Federal Reserve Chairman Kevin Warsh at Jackson Hole, fueled concerns about persistent inflation and the likelihood of additional interest rate increases from major central banks. US President Donald Trump vowed a strong response after Iran attacked US air bases in Jordan, following a US strike on Iran's Larak Island. Brent crude futures settled at $90.49 a barrel, up $2.39, while West Texas Intermediate climbed $2.36 to $85.76.
Expectations for a September Fed rate hike jumped significantly, with Fed funds futures traders pricing in a 65% probability, up from 35% prior to Warsh's speech. The European Central Bank is also widely anticipated to raise rates in September. US Treasury yields rose, with the benchmark 10-year Treasury note up 3.6 basis points at 4.758%, its highest since January 15, 2025. Yields on German and French 2-year bonds also climbed, and Japan's 2-year government bond yield reached a 31-year high. Treasury Secretary Scott Bessent's comments suggesting potential Japanese government action to strengthen the yen also raised the prospect of a Bank of Japan rate hike in September.
On Wall Street, major indexes closed lower, with the Dow Jones Industrial Average falling 374.09 points (0.70%) to 53,185.90, the S&P 500 down 25.62 points (0.33%) to 7,686.14, and the Nasdaq Composite losing 31.53 points (0.12%) to 26,370.89. Despite the day's losses, major indexes recorded gains for August, with the Nasdaq up 3.9% and the Dow marking its fifth consecutive monthly advance. European stocks also declined, with the pan-European STOXX 600 down 0.6% at 651.1 points. Asian markets also fell, with the Nikkei 225 down 1.6%, the Hang Seng Index down 0.8%, and the Shanghai Composite down 0.4%. Gold prices edged down 0.1% to $4,448.30 an ounce.
