Global financial markets experienced a downturn on Monday, with stocks and bonds falling as oil prices jumped over 2%. This market movement was primarily driven by two factors: a resumption of military attacks between the United States and Iran, and hawkish remarks made by Federal Reserve Chairman Kevin Warsh. The renewed conflict between the US and Iran reignited inflation concerns, while Warsh's speech at Jackson Hole significantly boosted market expectations for a September Fed interest rate hike.
On Wall Street, the Dow Jones Industrial Average dropped 0.70% or 374.09 points, settling at 53,185.90. The S&P 500 also fell 0.33% to 7,686.14, and the Nasdaq Composite decreased by 0.12% to 26,370.89. US Treasury yields rose, with the benchmark 10-year Treasury note yield climbing 3.6 basis points to 4.758%, reaching its highest level since January 15, 2025. Across the Atlantic, the pan-European STOXX 600 was down 0.6% at 651.1 points, and MSCI's gauge of global stocks fell 0.34% to 1,149.22.
Oil prices saw a significant increase, with Brent crude futures rising 2.71% or $2.39 to settle at $90.49 a barrel. US West Texas Intermediate (WTI) crude climbed 2.83% or $2.36 to settle at $85.76. This surge in oil prices followed reports that the US attacked Iranian rocket launchers on Larak Island, prompting Iran to retaliate by striking US military targets in Jordan. Federal funds futures traders are now pricing in a 65% probability of a September rate hike, a notable increase from approximately 35% before Warsh's comments. He emphasized the need for confidence that underlying inflation is moving towards the Fed's 2% objective at sufficient speed, stating that inflation at 3.7% is "concerning."
