Stocks rebounded while Treasuries rose on Monday as worries that the Iranian war will trigger an economic slowdown prompted traders to dial back bets on higher interest rates. Brent climbed towards US$115 (RM463.22) a barrel.
S&P 500 futures rose 0.8% after the benchmark slumped to an August low at the end of last week. US President Donald Trump said the US is in talks with “a new, and more reasonable, regime” in Iran and that negotiations have yielded progress. Still, he warned that the military would target Iran’s energy infrastructure if the Strait of Hormuz waterway remains closed.
Treasury yields fell across the curve after money markets cut the odds of a US Federal Reserve (Fed) rate hike in 2026 to less than 20%, from around 35% last Friday. The rate on two-year Treasuries dropped six basis points to 3.86%. The dollar rose.
While traders have so far largely focused on the inflationary shock from rising oil prices, sending the Treasury market towards its deepest monthly loss since October 2024, some of Wall Street’s biggest bond-fund managers said yields will slide as the war’s impact on growth becomes more apparent.
“While inflation remains a concern, the potential drag on growth and confidence should start to act as an offset, limiting further upside in yields,” said Francisco Simón, the European head of strategy at Santander Asset Management. “Together with oil, we think the bond market is currently one of the clearest expressions of how markets are pricing the impact of the conflict on the macro outlook.”
Fed chair Jerome Powell will participate later on Monday in a moderated discussion at Harvard University, where he may offer clues on how he sees the war affecting the balance of risks to inflation and employment.
In Europe, the Stoxx 600 advanced 0.7% as bond markets strengthened, although the slide in yields was less pronounced than in the US. Money markets now see the probability of a European Central Bank rate hike next month at about 55%. It was fully priced a week ago.
“The slight recovery in the bond markets is only temporary,” said Guillermo Hernandez Sampere, the head of trading at asset manager MPPM. “The impact on inflation is not yet fully priced in, and potential interest rate hikes would negatively affect the already gloomy economic outlook.”
The yen rose against all its Group-of-10 peers after Japan’s currency chief Atsushi Mimura said the nation may take bold action in the foreign exchange market. Aluminium advanced 3.2% after Iran’s weekend strikes on Middle Eastern smelters. Gold held its first weekly gain since the war began.
Oil may hit a record US$200 a barrel if the Iran war drags on until June, with the Strait of Hormuz remaining shut, Macquarie Group Ltd warned. A conflict that stretches through the second quarter would result in historically high real prices, analysts including Vikas Dwivedi said in a note, outlining a scenario with odds of 40%.
Source: Theedgemalaysia