Asian share markets traded mostly lower on Monday as oil prices rose amid uncertainty over a potential ceasefire between the United States and Iran, while rising bond yields kept pressure on financial markets. Investors are also preparing for a busy week of economic data, including key US inflation, growth and employment figures.
US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz over the weekend, saying Tehran was seeking a deal. Trump indicated that discussions would continue during the week, although Iran has shown little indication of changing its position.
Brent crude futures climbed 2.1% to $106.49 per barrel, taking monthly gains to nearly 18%. US crude futures also increased 1.5% to $93.84 per barrel. Limited refining capacity has pushed diesel prices to record levels, raising concerns that higher energy costs could contribute to persistent inflation and influence wage and pricing decisions.
The inflationary pressure has increased expectations of further interest-rate tightening by central banks. The Reserve Bank of Australia is expected to consider another rate increase at its upcoming meeting, while markets are also pricing in a higher probability of another US Federal Reserve rate hike in October.
Despite rising borrowing costs, stronger-than-expected economic data has provided some support to equities. The Atlanta Federal Reserve’s GDPNow model is currently projecting annualised US economic growth of 5% for the quarter. Economic activity has also remained relatively strong in parts of Asia and Europe, supported in part by continued investment in artificial intelligence.
Asian markets remained under pressure, with South Korea’s benchmark index falling 2.4% and MSCI’s broadest index of Asia-Pacific shares outside Japan declining 0.6%. Chinese blue-chip stocks dropped 1.4% and have declined more than 5% during the month, while Japan’s Nikkei was little changed.
US stock futures also pointed to a weaker opening, with S&P 500 futures down 0.3% and Nasdaq futures declining 0.5%. European markets were comparatively firmer, with futures for major European indexes showing modest gains.
Bond markets remained a major focus for investors. The yield on 30-year US Treasury bonds rose to 5.5185%, close to its highest level since 2004, after increasing 27 basis points during the month. Two-year Treasury yields have also risen sharply as expectations for further Federal Reserve tightening increased.
Higher bond yields are raising borrowing costs for businesses worldwide, including technology companies financing large-scale artificial intelligence investments. They can also reduce the present value investors place on future corporate earnings.
Investors are now awaiting a series of US economic reports covering inflation, GDP, manufacturing and employment. The September payrolls report is expected to show an increase of around 85,000 jobs, while the unemployment rate is forecast to remain at 4.1%.
Stronger US economic data has also supported the dollar, with the dollar index reaching a two-month high of 101.39. The euro fell to around $1.1380, while the US dollar gained 0.3% against the Japanese yen to 157.73.
In commodity markets, gold prices declined 1.7% to $4,212 an ounce as higher bond yields increased the opportunity cost of holding the non-interest-bearing asset.
