Key facts
- Global stocks fell on Monday as oil prices jumped due to a stalemate in US-Iranian talks.
- Brent crude futures rose 3% to $107.16 a barrel, with gains of nearly 20% this month.
- US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz.
- The dollar index reached two-month peaks at 101.39.
- The Reserve Bank of Australia is expected to tighten monetary policy next week.
- Markets imply a 68% chance the Federal Reserve will hike rates again in October.
Global stocks declined on Monday as oil prices surged amid a stalemate in US-Iranian talks, with the dollar also strengthening. The Reserve Bank of Australia is expected to tighten monetary policy next week, adding to a week already packed with macroeconomic risk.
US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, stating that Tehran was desperate to make a deal. Trump indicated that talks would continue this week, though Iran has shown no sign of altering its proposals. Brent crude futures rose as much as 3% to $107.16 a barrel, marking nearly a 20% gain for the month and a roughly 50% increase since the start of the war in late February. Refined product prices, particularly diesel, have reached all-time highs due to a lack of refining capacity, increasing the risk of embedded inflation.
Central banks have responded with rate hikes, and markets now imply a 68% chance that the Federal Reserve will increase rates for a second consecutive meeting in October, with approximately 90 basis points of tightening priced in by late next year. Despite rising bond yields, strong US economic data has supported expectations for corporate earnings. Bruce Kasman, chief economist at JPMorgan, noted a rare phase of broad-based strength in the global expansion over the past two decades, suggesting higher policy rates are expected to persist.
The MSCI's All-World index was down 0.1% on the day, set for a 2.4% gain this quarter. S&P 500 futures fell 0.3%, and Nasdaq futures shed 0.7%. European equity markets, however, showed resilience, with the STOXX 600 index up 0.4%, supported by defensive sectors like drugmakers and oil and gas stocks.
In Asia, Chinese blue chips slid 1.9% to a one-year low after US lawmakers proposed legislation to prevent the federal government from using Chinese-made components in sensitive data transmission systems for AI data centers. Yields on 30-year US Treasuries rose 2 basis points to 5.517%, near their highest level since 2004, and two-year yields increased by 55 basis points in September. Steven Major, global macro advisor at Tradition, stated that the rise in nominal Treasury yields is primarily driven by higher real yields and shifting policy expectations rather than an inflation risk premium.