Oil prices climbed further on Tuesday as uncertainty over US-Iran talks fuelled inflation fears. Government bond yields rose to multi-year highs, putting pressure on stocks.
International crude oil prices climbed further on Tuesday morning amid uncertainty over US-Iran talks, as hopes of reopening the Strait of Hormuz, a waterway crucial to oil shipments, faded.
ADVERTISEMENTADVERTISEMENTHopes that Middle East tensions would ease were dashed at the weekend when Donald Trump rejected Iran’s offer of a seven-day truce.
Mediators are working with the US and Iran on a deal to end the fighting and reopen the Strait of Hormuz, officials told the Associated Press. The disruption to shipping through the waterway has affected global trade and added to inflation.
Iran has proposed reopening the strait if the US lifts its blockade of Iranian ports and eases sanctions, among other conditions. Washington says any deal must also address Iran’s nuclear programme. Officials said the two sides disagree over the timing of concessions and who should act first.
Brent crude, the international benchmark, gained nearly 2% and traded above $107 a barrel early Tuesday, well above its price of roughly $72 a barrel in late February before the Iran war.
US West Texas Intermediate crude rose 1.8% to more than $94 a barrel.
High oil prices have renewed inflation concerns and expectations that the Federal Reserve will raise interest rates again next month. Government bond prices have fallen as a result, pushing yields to multi-year highs.
The benchmark 10-year US Treasury yield rose above 5.27% on Monday, its highest level in 19 years, following a rise of nearly half a percentage point through September. Yields rise when bond prices fall, and this month’s sell-off is the heaviest in two years.
The US two-year yield has risen even further, climbing by more than 0.57 percentage points this month to nearly 5%. In Europe, Germany’s benchmark 10-year bond yield reached 3.62%, its highest level since June 2009.
Government bond yields help set borrowing costs across the economy, from mortgages to company loans. As yields rise, governments, businesses and households face higher costs, while stocks can become less attractive to investors.
In Japan, a 40-year government bond auction drew its strongest demand since 2020 as relatively high yields attracted investors, according to Bloomberg.
Stock markets also struggled after all three main Wall Street indexes fell on Monday.
In Asia on Tuesday, Japan’s Nikkei 225 lost 1.3%, South Korea’s Kospi declined 0.9% and Hong Kong’s Hang Seng dropped 0.6%. Hong Kong-traded shares of Shein fell 11.7% after the online fashion retailer reported a 67% fall in quarterly adjusted net profit from a year earlier.
The Shanghai Composite was little changed following a report from China’s official Xinhua News Agency late Monday that its State Council had discussed ways to make economic policies more effective.
Australia’s S&P/ASX 200 was down more than 0.1% by early morning in Europe.
Australia’s central bank raised its key interest rate by 0.25 percentage points to 4.6% on Tuesday, a 15-year high, as rising oil prices fuelled inflation. The Reserve Bank said higher fuel costs were pushing up prices across the economy, while growth and inflation had been stronger than expected.
The US dollar edged up to 157.42 Japanese yen from 157.39 yen. The euro fell to $1.1362 from $1.1371.
Gold remained near $4,160 after steep losses on Monday, as expectations of further rate rises weighed on the metal, which pays no interest.
Investors are also awaiting key US inflation and jobs data this week that could influence the Fed’s next decision. Markets are pricing in another rate rise at the end of October.
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