Global financial markets experienced a downturn as bond yields increased and stock prices declined on Monday. This was primarily driven by a more than 2% surge in oil prices, fueled by the resumption of military hostilities between the United States and Iran. The escalating conflict intensified concerns about inflation and bolstered expectations for further interest rate hikes by central banks.
US President Donald Trump stated his intention to "hit them hard" after Iran launched missile attacks on two US air bases in Jordan. These attacks were a retaliation to a prior US strike on Iran's Larak Island. The geopolitical tensions quickly impacted oil markets, with Brent crude futures rising by $2.39, or 2.71%, to settle at $90.49 a barrel. US West Texas Intermediate crude also saw a significant climb of $2.36, or 2.83%, settling at $85.76.
On Wall Street, major indexes closed lower. The Dow Jones Industrial Average fell by 374.09 points, or 0.70%, to 53,185.90. The S&P 500 dropped 25.62 points, or 0.33%, to 7,686.14, and the Nasdaq Composite decreased by 31.53 points, or 0.12%, to 26,370.89. The yield on the benchmark US 10-year Treasury note rose by 3.6 basis points to 4.758%, reaching its highest level since January 15, 2025.
The renewed conflict also pushed up expectations for monetary tightening. Fed funds futures traders are now pricing in a 65% probability of a September rate hike, a significant increase from around 35% previously. The European Central Bank is also widely anticipated to raise rates during its meeting on September 9-10. Analyst Peter Cardillo noted that the market is "really beginning to feel the weight of climbing yields."
