Oil prices climbed significantly, with Brent crude rising 1.9% to about $106.30 a barrel and West Texas Intermediate (WTI) crude gaining 1.2% to $93.52 a barrel, after President Donald Trump rejected Iran's latest seven-day proposal to reopen the Strait of Hormuz. This rejection reignited Middle East tensions, contributing to elevated energy costs that are fueling inflation concerns and bolstering expectations for further interest rate hikes by central banks. Trump also indicated he is seriously considering a ban on diesel exports, which could further impact global energy supply, particularly in Europe.
US equity-index futures slipped in early Asian trading, with the S&P 500 Index and Nasdaq 100 Index futures both falling 0.3%. Gold also saw a decline, dropping 0.5% to about $4,260 an ounce, as the advance in oil stoked inflation fears, which typically leads to higher interest rates. The dollar edged higher against most major currencies, while the Japanese yen weakened. Nick Twidale, chief market analyst at AT Global Markets, commented that geopolitical developments over the weekend are likely to keep volatility elevated across global markets.
The bond market reacted with significant movements, as the average yield on a gauge of global bonds climbed above 4% for the first time since 2007. This increase in borrowing costs raises concerns about potential negative impacts on the economy and company earnings. Treasury futures indicated a weaker open, and the 10-year bond in Australia edged lower. Cleveland Fed President Beth Hammack cited resilient economic growth, a strong labor market, and government debt concerns as factors driving long-term Treasury yields higher. Traders are fully pricing in at least one more 25 basis-point hike from the Federal Reserve before the year-end.
