The conflict between the U.S. and Iran intensified with a fresh round of strikes from U.S. Central Command on Iranian targets, followed by Iran's retaliatory operations targeting American assets in the region, including reported explosions over Aqaba, Jordan. President Donald Trump downplayed the likelihood of a deal and warned of a significantly larger U.S. response if Iran continued its attacks.
This escalation immediately impacted global markets. Brent crude futures surged to $94.52 a barrel, and U.S. WTI futures reached levels not seen since July, with some reports noting Brent crude climbing above $95 and U.S. crude towards $91. This rise in oil prices fueled renewed inflation concerns, leading to a bond sell-off globally. U.S. 10-year Treasury yields climbed to 4.80%, reaching their highest levels since January 2025, while the short-term 2-year yield rose to 4.40%. Bond yields in Japan and the U.K. also pushed towards multi-decade highs, reflecting a global inflation scare and supply shock.
The hawkish sentiment from central banks intensified in response to these developments. Federal Reserve Governor Michael Barr indicated he would support a rate hike if inflation does not moderate sufficiently, echoing recent statements from Fed Chair Kevin Warsh. Markets are now leaning towards a quarter-point rate hike this month, with the benchmark rate already at 3.50%-3.75%. In Europe, August consumer prices rose to 3.3%, well above the European Central Bank's target, making a rate hike there all but certain. The U.S. dollar also strengthened against major currencies, with the dollar index rising 0.27% to 99.68, as higher Treasury yields encouraged investors to seek safety in the greenback. The euro fell 0.23% to $1.1589, and the Japanese yen weakened 0.3% to 160.19 against the dollar.
Wall Street experienced a third consecutive negative session, with the S&P 500 index down 0.71% and the Nasdaq Composite declining more than 1%. This snapped a calm run that had seen markets heading for a fifth straight winning month. Russian President Vladimir Putin condemned the U.S. strikes and voiced support for Iran, indicating Russia would assist Tehran in its conflict with the U.S. Meanwhile, U.S. Treasury Secretary Scott Bessent asserted that Iran's bankruptcy was in an "acceleration phase," while noting the continued flow of approximately 17 million barrels of crude through the Strait of Hormuz.
