Global crude oil prices continued to rise on Tuesday as negotiations between the United States and Iran remained unresolved, with prospects for the Strait of Hormuz — a key conduit for petroleum trade — remaining uncertain. Prospects for a de-escalation of tensions in the Middle East dimmed over the weekend after Donald Trump turned down Iran's proposal for a seven-day ceasefire.
Negotiators are engaging with both Washington and Tehran in an effort to broker an agreement that would halt hostilities and restore passage through the Strait of Hormuz, according to unnamed officials. Interruptions to vessel traffic along the route have weighed on worldwide commerce and contributed to rising consumer prices.
Tehran has put forward a proposal to restore access through the strait, contingent on Washington lifting port restrictions on Iran and relaxing sanctions, along with additional conditions. The United States has stated that any agreement also encompasses Iran's nuclear programme. The two parties remain at odds over the sequence of concessions and which side bears responsibility for moving first, according to officials.
Brent crude, the global oil benchmark, rose close to 2% on Tuesday morning to trade above $107 per barrel, compared with approximately $72 per barrel in late February prior to the outbreak of conflict with Iran. WTI crude oil climbed 1.8 percent, reaching above the $94-per-barrel threshold.
Elevated petroleum costs have prompted speculation about a possible interest rate increase by the Federal Reserve at its next meeting, alongside renewed concerns about inflationary pressure. Sovereign debt valuations have declined, driving yields to their highest levels in several years.
On Monday, the yield on the 10-year US Treasury note climbed past 5.27%, reaching a peak not seen in nearly two decades, after gaining close to half a percentage point over the course of September. Bond prices and yields move in opposite directions, and the current month's decline in bond values ranks as the steepest in two years. The two-year Treasury yield has advanced by over 0.57 percentage points so far this month, approaching the 5% threshold.
Germany's 10-year bond yield climbed to 3.62% on Tuesday, a level not seen across European markets since June 2009. Yields on sovereign debt influence the rate at which households and businesses can access borrowed funds throughout the wider economy. When borrowing costs climb, the burden on governments, companies, and consumers increases, and equities may lose their appeal relative to other investment options.
A 40-year Japanese government bond sale recorded its highest investor demand since 2020, with elevated yields drawing buyers to the offering, news reports indicate.
Equity markets also faced downward pressure after all three major Wall Street indices recorded losses on Monday. Trading losses spread across the region, with Tokyo's Nikkei 225 falling 1.3%, Seoul's Kospi retreating 0.9%, and the Hang Seng in Hong Kong slipping 0.6%.
Shein's shares listed in Hong Kong dropped 11.7% after the e-commerce clothing company disclosed a 67% decline in adjusted net profit for the quarter compared with the same period a year ago. Trading on the Shanghai Composite remained largely flat after a late Monday dispatch from China's state-run news outlet revealed that the country's State Council had convened to explore ways of strengthening the impact of existing economic measures.
The S&P/ASX 200 index in Australia slipped fractionally, losing just over 0.1% as European markets opened for the day. On Tuesday, the Reserve Bank of Australia raised its official cash rate by 25 basis points to 4.6 per cent, a level not seen in over a decade and a half, as persistent upward pressure from elevated oil prices continued to weigh on the inflation outlook. The Reserve Bank noted that rising fuel prices were contributing to broader inflationary pressure throughout the economy, with both output growth and price increases coming in above forecasts.
The dollar nudged higher against the yen, trading at 157.42 compared with 157.39 previously. The euro edged down to $1.1362, slipping from a prior rate of $1.1371. Gold held around $4,160 following a decline in the previous session, with anticipated interest rate increases continuing to put pressure on the non-yielding asset.
Markets are watching for upcoming American inflation and employment figures that may shape the Federal Reserve's next policy move. Traders are anticipating an interest rate increase at the end of next month.
