Asian shares, US futures retreat and oil prices surge after US strike on Iranian rocket launchers

Wall Street saw a downbeat finish for August on Monday as stocks declined and oil prices soared following the U.S. military action against Iran. The S&P 500 index dropped 0.3%, while the Dow Jones Industrial Average decreased 0.7% and the Nasdaq composite fell 0.1%. August had seen significant market turbulence, but both the S&P 500 and Nasdaq ended the month with gains after losing in July and June. The Dow, however, achieved its fifth consecutive monthly increase.

Nearly every sector within the S&P 500 experienced losses on Monday, with energy stocks being the sole exception. Exxon Mobil and Chevron both rose by 2.7% and 2.1%, respectively. However, Edison International and PG&E were among the biggest decliners, with declines of 23.1% and 20.1%, respectively. This came after reports of potential California wildfire legislation that would allow insurers to sue utilities for related claims.

Amazon experienced a 2.5% drop following reports that the Federal Trade Commission and over 20 states were preparing to sue the company over allegations of price manipulation on its platform. The U.S. conflict with Iran continued to be a major focus for Wall Street, with U.S. forces targeting Iranian rocket launchers in the Strait of Hormuz on Sunday.

The UAE reported intercepting an Iranian drone in its waters on Monday. These actions followed a period of reduced activity in the U.S.-Iran war, which had lasted over six months and had restricted traffic in the Strait of Hormuz, accounting for about 20% of global oil shipments. High oil prices due to the war have made gasoline and other goods more expensive.

Brent crude, the international benchmark, increased by 2.7% to settle at $90.49 per barrel on Monday. After falling below $80 earlier in August, Brent has since risen without any indication of an imminent end to the conflict. The national average for gasoline during August has been above $4 per gallon, marking the first time it has happened in a month since the pandemic's onset in 2022.

This surge in energy prices has contributed to high inflation, negatively impacting household spending and consumer confidence. The Federal Reserve faces a more complex task in adjusting its interest rate policy due to this situation. Inflation remains well above the Fed's target of 2%, prompting expectations of at least one interest rate increase by the end of the year.

Fed Chair Kevin Warsh suggested a possible rate hike in the coming months, as inflation remains far above the target. The two-year Treasury yield, which mirrors expectations of Fed actions, remained steady at 4.34%, up significantly from around 3.50% at the beginning of 2026. The 10-year Treasury yield also rose to 4.75%, nearing the level seen two weeks ago when the Trump administration intervened in the bond market.

Higher interest rates aimed at cooling inflation could potentially harm the jobs market. Later in the week, the U.S. will release August jobs data, with July seeing an unexpected 23,000 job cuts. Revisions from the Labor Department revealed an additional 103,000 job losses from May and June.