Global stocks experienced a decline on Monday as ongoing tensions in the Middle East, specifically a stalemate in US-Iranian talks over reopening the Strait of Hormuz, led to a significant surge in oil prices. Brent crude futures rose as much as 3% to $107.16 a barrel, bringing monthly gains to nearly 20% and reaching almost 50% above pre-war levels. This increase in oil prices rekindled inflation concerns, particularly given a dearth of refining capacity that has driven diesel prices to all-time highs.
The rising oil prices and inflation worries prompted central banks to consider further rate hikes. Markets now indicate a 68% chance of the Federal Reserve hiking rates for a second consecutive meeting in October, with about 90 basis points of tightening priced in for the coming year. The Reserve Bank of Australia is also expected to tighten monetary policy. Bond yields reacted significantly, with 30-year Treasuries rising 2 basis points to 5.517%, near their highest since 2004, and two-year yields increasing 55 basis points in September, their largest monthly rise since February 2023. This surge in bond yields put pressure on non-yielding assets like gold, which fell over 3% to $4,148.83 an ounce.
Despite the geopolitical and inflationary concerns, strong US economic data has supported expectations for corporate earnings, underpinning equity values, according to JPMorgan's chief economist Bruce Kasman. However, major stock indices still saw declines, with S&P 500 futures falling 0.3% and Nasdaq futures shedding 0.7%. Europe's STOXX 600, however, bucked the trend slightly, rising 0.4%, driven by defensive sectors such as drugmakers and oil and gas stocks. Analysts like Laurent Lamagnere from AlphaValue noted the difficult environment for equities due to rising oil and bond yields.
