Oil prices surged and bonds declined after President Donald Trump rejected Iran's most recent offer to reopen the Strait of Hormuz, rekindling Middle East tensions. Brent crude climbed 1.3% to about $105.70 a barrel, while West Texas Intermediate crude rose 0.9% to $93.26 a barrel. This rise in oil prices contributed to inflation concerns, pushing the 10-year Treasury yield up by four basis points to 5.20%.
Iran maintained its conditions for reopening the Strait of Hormuz, which include the release of frozen assets, the lifting of oil sanctions, and an end to the U.S. naval blockade. Trump, despite rejecting the offer, stated he expects negotiations to resume this week. The rejection reversed some market optimism from the previous week and reignited fears of a supply crisis, which has been driving up costs globally.
Global stock markets experienced mixed reactions. MSCI's gauge of Asian stocks opened slightly lower, with South Korea's benchmark slipping, while Japanese stocks edged higher. S&P 500 futures fell 0.2%. Gold dropped 0.7% to about $4,250 an ounce, also due to inflation concerns. The renewed geopolitical developments are expected to keep market volatility elevated. The Federal Reserve's next policy meeting is in focus, with CME's FedWatch tool indicating a more than 65% chance of another interest rate hike, driven by resilient economic growth and a strong labor market.
