Trump Rejects Iran's Proposal for Talks; Global Stocks and Bonds Under Pressure, Oil Prices Up Over 2%, Gold Falls Below 4200

Over the weekend, Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, causing the market gains accumulated last Friday on diplomatic negotiation expectations to be almost completely erased. Oil prices immediately surged, renewed inflation pressure weighed on the bond market, Asian-Pacific stocks generally declined, and US equity futures fell in tandem.

Brent crude rose more than 2%, spot gold fell below $4180/oz with an intraday decline of over 2%, and spot silver slid 4.0% intraday, approaching the $60/oz mark. The US 2-year Treasury yield climbed 5 bps to 4.90%, and the 10-year yield rose 4 bps, erasing all of Friday’s declines.

Rajeev De Mello, Senior Macro Portfolio Manager at Gama Asset Management, said: “Investors are once again disappointed by the lack of diplomatic progress. Previously, the market hoped negotiations would ease Middle East tensions and reopen the Strait of Hormuz, but these hopes have now been dashed.”

Global major asset trends:

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

Gold and silver fall: Spot silver slipped 4.0% in the afternoon, quoted at $61.7/oz. Spot gold lost the $4180/oz mark, with an intraday drop of over 2.5%.

Global bond markets declined broadly:

India’s 10-year government bond yield rose 5 bps to 7.17%.

US Treasury yields moved higher, with the 5-year yield up 5 bps.

Japan’s 30-year government bond yield increased 1.5 bps to 3.925%.

Government bond yields in Japan, Australia, and New Zealand all climbed in step with Treasuries, and South Korea’s 3-year bond yield rose to its highest since November 2022.

Asia-Pacific markets under pressure at Monday’s open: Asia-Pacific markets opened under strain on Monday. South Korea’s KOSPI index fell more than 2.5%, Samsung Electronics slipped 5%, and SK Hynix dropped 4.4%. The Nikkei 225 dipped about 0.10%, and India’s NIFTY 50 was down 1.30%.

US stock futures fall: Dow futures fell about 180 points (0.4%), S&P 500 futures slipped 0.4%, and Nasdaq 100 futures dropped 0.7%.

Trump Rejects Iran Proposal, Negotiation Prospects Remain Uncertain

After Trump rejected Iran’s “7-day reopening of the Strait of Hormuz” ceasefire proposal, Iranian Foreign Minister Araghchi stated that Iran is “ready for the resumption of hostilities” while emphasizing that the door to diplomacy is not closed. Qatar’s prime minister, a mediator, admitted that the conflict is “increasingly difficult to resolve” and currently there is no clear end path. The US continues to escalate blockades and sanctions, US diesel prices have surged more than 70% since the conflict erupted, and the negotiating impasse is being transmitted to the global energy market.

According to Xinhua News Agency citing Iranian media on the 27th, Iranian Foreign Minister Araghchi said Iran is ready to resume hostilities with the US but has not given up contact via diplomatic channels. He said, “We are fully prepared to restart hostilities,” adding, “We are also ready at any time for diplomatic engagement.” “It depends on US President Trump’s choice.”

Oil Price Surge Rekindles Inflation Worries, Bond Markets Under Pressure

According to Bloomberg, the escalating Middle East tensions this year have driven oil prices up roughly 75% cumulatively.

The Brent crude prompt spread has widened to a spot premium of about $7.75 per barrel, extending sharply from around $4 a week ago, reflecting heightened near-term supply concerns. Currently, Brent crude is up over 2% and WTI crude about 2%.

Persistently high energy costs are being passed through to inflation, raising expectations for further rate hikes by the Federal Reserve. According to Bloomberg, global bond yields averaged over 4% last week, the highest level since 2007. Traders have now fully priced at least one more 25 bp Fed rate hike this year—the Fed already delivered its first hike since 2023 this month.

Ed Yardeni, president of Yardeni Research, wrote: “The rapid rise in global 2-year government bond yields suggests that major central banks need to go further with rate hikes to counter inflation shocks brought by sustained high oil prices from renewed Middle East conflict. Unfortunately, higher rates further worsen large fiscal deficit outlooks for governments worldwide.”

Japanese, Australian, and New Zealand government bond yields are climbing in tandem with US Treasuries; South Korea’s 3-year yield has reached its highest level since November 2022.

Asia-Pacific Stock Markets Fall, US Equity Futures Drop

Asia-Pacific markets opened under pressure Monday. South Korea’s KOSPI index fell more than 2.5%, Samsung Electronics dropped 5%, and SK Hynix declined 4.4%. Japan’s Nikkei 225 was down about 0.10%, India’s NIFTY 50 fell 1.30%, while Australia's S&P/ASX 200 edged up 0.11%.

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

Last week, US equities performed robustly overall—the Dow rose 0.3%, ending a three-week losing streak; the S&P 500 rose 1.2%, and the Nasdaq Composite gained 2.1%, both posting their best weekly performance since early August.

Gold and Silver Plunge, Dollar Strengthens

Gold fell around 2.5%, dropping below the $4200/oz line, while spot silver’s intraday decline reached 4% to $61.7/oz.

Rising rate hike expectations have suppressed the appeal of non-yielding 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 Rates Strategist at TD Securities Singapore, said that the Middle East stalemate “is likely to remain the market focus” until the Fed’s preferred inflation gauge and jobs report are released later this week.

Key data this week include Wednesday’s August Personal Consumption Expenditure (PCE) price index, Thursday’s US manufacturing data, and Friday’s highly watched September non-farm payrolls report.

Treasury Secretary Besant sent a relatively dovish signal, saying that policymakers should keep an “open attitude” toward rates, as productivity gains from AI and deregulation could help curb inflation.

Vey-Sern Ling, Managing Director at Union Bancaire Privee, said: “As long as the Iran conflict persists, the market faces prospects of higher inflation, more rate hikes, and tightening financial conditions. But given current valuations are already under pressure and AI-driven earnings continue to rise, investors should focus on buy opportunities from a long-term perspective.”