Trump rejects Iran peace talks proposal, putting pressure on global stocks and bonds, while oil prices rise by more than 2% and gold falls below $4,200.

Trump's weekend rejection of Iran's latest proposal to reopen the Strait of Hormuz almost completely erased the gains accumulated in the market last Friday due to rising expectations of diplomatic negotiations. Oil prices immediately jumped, and rising inflationary pressures again weighed on the bond market. Asian stock markets generally declined, and US stock futures fell in tandem.

Brent crude oil rose more than 2%, spot gold fell below $4,180 per ounce, down more than 2% on the day, and spot silver fell 4.0% on the day, approaching the $60 per ounce mark. The yield on the 2-year U.S. Treasury note rose 5 basis points to 4.90%, and the yield on the 10-year note rose 4 basis points, erasing all of Friday's losses.

Rajeev De Mello, senior macro portfolio manager at Gama Asset Management, said: “Investors are once again disappointed by the lack of diplomatic progress. The market had hoped that the negotiations would ease the conflict in the Middle East and push for the reopening of the Strait of Hormuz, but those hopes have been dashed.”

Global major asset trends:

Oil prices rose: Brent crude rose more than 2%, and WTI crude rose about 2%.

Gold and silver fell: Spot silver fell 4.0% in the afternoon, to $61.7 per ounce. Spot gold fell below $4,180 per ounce, down more than 2.5% on the day.

Global bond markets fell across the board:

The yield on India's 10-year government bonds rose 5 basis points to 7.17%.

U.S. Treasury yields rose, with the 5-year Treasury yield climbing 5 basis points.

The yield on Japan's 30-year government bonds rose 1.5 basis points to 3.925%.

Yields on Japanese, Australian, and New Zealand government bonds all rose in tandem with those on US Treasuries, while the yield on South Korean 3-year government bonds rose to its highest level since November 2022.

Asian markets opened under pressure on Monday . South Korea's KOSPI index fell over 2.5%, Samsung Electronics fell 5%, and SK Hynix fell 4.4%. Japan's Nikkei 225 index fell approximately 0.10%, and India's NIFTY 50 fell 1.30%.

U.S. stock futures fell: Dow Jones futures fell about 180 points (0.4%), S&P 500 futures fell 0.4%, and Nasdaq 100 futures fell 0.7%.

Trump rejects Iran's proposal, leaving the future of negotiations uncertain.

After Trump rejected Iran's proposal to reopen the Strait of Hormuz within seven days, Iranian Foreign Minister Araqchi stated that Iran was "prepared for a resumption of hostilities," while also saying that the diplomatic door remained open. The Prime Minister of Qatar, the mediator, admitted that the conflict was "becoming increasingly difficult to resolve" and that there was currently no clear path to an end. The US continues to escalate its blockade and sanctions, and US diesel prices have risen by more than 70% since the conflict began, with the negotiation stalemate spreading to the global energy market.

According to a Xinhua News Agency report citing Iranian media on the 27th, Iranian Foreign Minister Araqchi stated that Iran is prepared for a resumption of hostilities with the United States, but has not abandoned diplomatic contact. He said, "We are fully prepared for a resumption of hostilities," and at the same time, "we are ready to engage in diplomatic contact at any time." "It depends on the choice of US President Trump."

Soaring oil prices reignite inflation concerns, putting pressure on the bond market across the board.

According to Bloomberg, tensions in the Middle East have driven oil prices up by about 75% so far this year.

The Brent crude oil prompt spread widened to a cash premium of approximately $7.75 per barrel, a significant increase from around $4 a week ago, indicating a marked rise in market concerns about recent supply tightness. Currently, Brent crude is up over 2%, and WTI crude is up about 2%.

High energy costs continue to transmit to inflation, fueling expectations of further interest rate hikes by the Federal Reserve. According to Bloomberg, the average global bond yield broke through 4% last week for the first time since 2007. Traders are now fully pricing in at least another 25 basis point rate hikes by the Fed this year—the Fed's first rate hike since 2023 this month.

Ed Yardeni, president of Yardeni Research, wrote: "The rapid rise in global 2-year government bond yields indicates that central banks need to raise interest rates further to combat the inflationary shock caused by persistently high oil prices resulting from the renewed escalation of conflict in the Middle East. Unfortunately, higher interest rates also further worsen the outlook for massive deficits for governments around the world."

Yields on Japanese, Australian, and New Zealand government bonds all rose in tandem with those on US Treasury bonds, while the yield on South Korean 3-year government bonds rose to its highest level since November 2022.

Asian stock markets fell, and US stock futures declined.

Asian markets opened under pressure on Monday. South Korea's KOSPI index fell more than 2.5%, Samsung Electronics fell 5%, and SK Hynix fell 4.4%. Japan's Nikkei 225 index fell about 0.10%, and India's NIFTY 50 fell 1.30%. Australia's S&P/ASX 200 rose slightly by 0.11%.

Dow Jones futures fell about 180 points (0.4%), S&P 500 futures fell 0.4%, and Nasdaq 100 futures fell 0.7%.

U.S. stocks performed strongly last week – the Dow Jones Industrial Average rose slightly by 0.3%, ending a three-week losing streak; the S&P 500 rose 1.2% and the Nasdaq Composite rose 2.1%, both marking their best weekly performance since early August.

Gold and silver prices plummeted, while the US dollar strengthened.

Gold fell about 2.5%, breaking below the $4,200/ounce mark, while spot silver fell as much as 4% during the day, reaching $61.7/ounce.

Rising expectations of interest rate hikes have dampened the appeal of non-interest-bearing precious metals, while the US dollar has strengthened against most major currencies.

Market focus shifts to this week's economic data

Prashant Newnaha, senior Asia-Pacific interest rate strategist at TD Securities in Singapore, said the Middle East stalemate "is likely to remain the focus of the market" until the release of the Fed's preferred inflation indicators and employment report later this week.

Key data releases this week include: the August Personal Consumption Expenditures (PCE) price index released on Wednesday, US manufacturing data on Thursday, and the much-anticipated September non-farm payrolls report on Friday.

Finance Minister Bessant, on the other hand, sent a relatively dovish signal, saying that policymakers should remain “open” to interest rates, as productivity gains from artificial intelligence and deregulation could help curb inflation.

Vey-Sern Ling, Managing Director of Union Bancaire Privee, said: “As long as the conflict in Iran continues, the market will face the prospect of higher inflation, interest rate hikes and tighter financial conditions. However, given that valuations are already under pressure and earnings driven by artificial intelligence continue to climb, investors should look for buying opportunities with a long-term perspective.”

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