Oil prices and bond yields rose on Monday after US President Donald Trump rejected an Iranian proposal for a seven-day truce, reviving concerns about inflation and the economic fallout from the conflict.
Stocks were mixed as investors looked ahead to a series of key US economic data releases that could influence the Federal Reserve’s next policy decision.
Tehran last week presented a proposal at the United Nations General Assembly calling for a temporary halt in hostilities and the reopening of the Strait of Hormuz. Such a move could ease a severe disruption to global energy supplies that has pushed up costs worldwide.
The Strait of Hormuz is a crucial artery for global energy shipments and has become a major flashpoint in the conflict between the United States and Iran. The situation has been further complicated by Houthi control of Yemen’s Red Sea coast, including the Bab al-Mandab Strait, another strategically important shipping route.
But Trump rejected Tehran’s proposal.
“I reject their proposal,” the US president told reporters outside the White House.
He nevertheless told Axios that he expected negotiations with Iran to resume.
“They want to make a deal, but it is not the deal that I want to make,” Trump said. “It is what we would have maybe agreed to a year ago.”
“They overplayed their hand,” he added in comments published Sunday.
Citing people familiar with the matter, Axios reported that indirect talks between Washington and Tehran could resume as early as Monday.
Iran has continued to insist on several conditions for reopening the Strait of Hormuz, including the release of frozen Iranian assets, the lifting of US sanctions on its oil exports and an end to the US naval blockade.
Oil rebounds
Oil prices fell by more than two per cent on Friday after news emerged of Iran’s truce proposal, but reversed those losses at the start of the new trading week.
Brent crude climbed back above $106 a barrel, while US West Texas Intermediate also advanced.
The renewed rise in oil prices has intensified concerns over inflation and weighed on several Asian stock markets.
Seoul fell more than two per cent when trading resumed after a prolonged holiday, while markets in Tokyo, Shanghai, Manila, Bangkok and Jakarta also declined.
Hong Kong, Sydney, Singapore and Wellington, however, posted gains.
Bond yields also moved higher. According to Bloomberg, the average yield on a gauge of global bonds surpassed four per cent last week for the first time since 2007.
The jump in energy prices is putting renewed focus on the Federal Reserve ahead of its next policy meeting at the end of October. The market is also closely watching upcoming US inflation and employment data for clues about the path of interest rates.
Investors are due to receive the Fed’s preferred measure of inflation this week, along with a key jobs report that could influence policymakers’ assessment of the US economy.
“Middle East tensions have flared again after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz,” Stephen Innes of Quintex Intel wrote.
“Oil has pushed higher, Asian equities are softer, and suddenly the brief Friday reprieve in global fixed income looks more like an intermission than the end of the show.”
He added that markets were still pricing in some possibility of a return to negotiations.
“The market is still pricing some probability that everyone eventually finds their way back to the table, even if they continue to spend the next few weeks shouting across it first,” Innes said.
Key figures at around 0330 GMT
West Texas Intermediate: Up 1.0 per cent at $93.34 a barrel
Brent North Sea crude: Up 1.8 per cent at $106.19 a barrel
Tokyo – Nikkei 225: Down 0.3 per cent at 66,188.90
Hong Kong – Hang Seng Index: Up 0.7 per cent at 24,676.45
Shanghai – Composite: Down 1.7 per cent at 3,820.82
Dollar/yen: Up at 157.83 yen from 157.20 yen on Friday
Euro/dollar: Down at $1.1386 from $1.1399
Pound/dollar: Down at $1.3241 from $1.3251
Euro/pound: Down at 85.99 pence from 86.03 pence
New York – Dow: Up 0.9 per cent at 51,828.62 at the close
London – FTSE 100: Up 0.1 per cent at 10,695.25 at the close
AFP
