Manus on Markets: US-Iran escalation ahead of SCO summit

Borrowing costs in Europe and Japan surged to multi-year highs on Monday as oil prices jumped 3% following U.S. military strikes against an Iranian island in the Strait of Hormuz. Global stocks showed caution on the final trading day of August, while gold approached its best monthly performance since January and the dollar weakened.

Brent crude surged to over $92 a barrel after the U.S. attack, raising fears of additional interest rate hikes by major central banks. The Federal Reserve's war hawk stance, as expressed by Chairman Kevin Warsh, heightened expectations of a September rate increase. Economists forecast a 60% chance of a September Fed rate rise, up from under 50% the previous week.

The European Central Bank anticipates a rate hike during its meeting on September 9-10. Meanwhile, market sentiments shifted, with the STOXX 600 index in Europe down 0.2%, and U.S. stock futures slightly lower as the European trading session progressed. Asian markets saw a dip in Japan's Nikkei and MSCI's global index, while Chinese blue chips rebounded despite new regulatory changes from Beijing.

The U.S. August payrolls report and consumer price data due on September 11 will be crucial in determining the Fed's actions. Economists anticipate a payroll increase of 58,000 and a 4.1% unemployment rate. New Zealand's central bank is expected to raise rates for a second consecutive meeting, and the Bank of Canada may remain steady amid trade dispute concerns.

U.S. Treasury Secretary Scott Bessent plans to meet with the Bank of Japan's head, suggesting a potential September rate hike for Japan. Analysts argue multiple hikes are necessary to support the yen, which has slipped past 160 dollars. The dollar/yen rate currently stands at 159.74, down 0.14% on the day.