US stocks and Treasuries declined as renewed geopolitical tensions surrounding the Iran war pushed oil prices higher, leading to increased inflation concerns. The Nasdaq 100 futures fell 1%, S&P 500 contracts slipped 0.5%, and the Dow Jones Industrial Average futures dropped 0.4%. Chipmakers, including SK Hynix Inc., were among the biggest decliners in Asian markets, although Nvidia Corp. saw a 3% rise after announcing a new security system and a significant share buyback program. Europe's Stoxx 600, however, bucked the trend, rising 0.1% driven by consumer stocks.
The bond market also experienced a selloff, with the yield on 10-year Treasuries advancing seven basis points to 5.23%, and the two-year yield climbing five basis points to 4.90%. This rise in yields makes borrowing more expensive and reduces the attractiveness of non-interest-bearing assets like gold. Gold fell by 3.2% to $4,148.83 an ounce, extending its September losses to over 6%, putting pressure on gold miners like Newmont, which sank 3.5%.
Oil prices were a primary catalyst for these market movements, with Brent crude rising 3.5% to $108.01 a barrel. This surge was attributed to President Donald Trump's rejection of Iran's latest proposal to reopen the Strait of Hormuz, intensifying inflation concerns and bolstering expectations for further interest rate hikes from the Federal Reserve. Investors are now pricing in about a 70% probability of a Fed rate hike next month, up from 65% on Friday. The bond market is also seeing short counts on the Fed delivering a rate hike.
Analysts like Laurent Lamagnere from AlphaValue noted the challenging environment for equities, stating, "A lot is moving against equities at the moment: oil is on the rise and bond yields are going through the roof. It’s quite hard for me to be optimistic." The rising yields have also led to a flattening of the yield curve, with the extra yield investors demand for 10-year Treasuries over two-year notes shrinking to 17 basis points, the slimmest gap since early 2025, hinting at potential economic slowdown risks.
Upcoming data, including a report on Wednesday forecast to show a 0.5% increase in August inflation-adjusted personal spending, the biggest advance in over a year, is expected to provide further insights into price pressures within the US economy. Meanwhile, companies like TotalEnergies SE announced plans to boost dividends and share buybacks, benefiting from rising oil and gas prices, and Nu Holdings Ltd. held discussions to acquire UK digital bank Monzo Bank Ltd.
