ASX set to slump as Wall Street falls on higher oil prices, yields

On September 1, US stocks experienced a decline as global bond selloff intensified and crude prices surged due to uncertainty surrounding the US-Israeli conflict with Iran. All three major US stock indexes started the new month on a poor note, closing lower as Middle East tensions escalated. Global sovereign debt yields hit multiyear highs, reflecting increased expectations that central banks may expedite interest rate hikes. The benchmark US Treasury yield rose after hitting a 19-month peak on August 31.

Federal Reserve Chairman Kevin Warsh's hawkish remarks on Friday were cited as contributing to the market's risk-off sentiment. Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky, mentioned the Fed chairman's comments in conjunction with the rise in oil prices. Seasonal weakness may also be impacting investor sentiment, as September historically has the lowest average return since 1926, according to Fisher Investments.

The US launched airstrikes against Iranian targets near the Strait of Hormuz following Treasury Secretary Scott Bessent's announcement that Washington may impose new sanctions on Iran to economically strangle Tehran. Iran responded by warning it would prevent oil exports from the Gulf, driving crude prices up and exacerbating inflation concerns just days after Warsh indicated he would raise prices to the central bank's target.

Financial markets are pricing in a 68.2% chance of a 25-basis-point rate hike at the Fed's September policy meeting, up from 39.6% a week ago, according to CME's FedWatch tool. Jay Hatfield, a portfolio manager at InfraCap in New York, stated that the Fed aims to demonstrate independence from the administration. The US Labor Department's JOLTS report showed a slowdown in the jobs market, while Purchasing Managers' Index data suggested factory activity is losing momentum and spending on residential construction is falling, highlighting issues like high prices, supply constraints, and geopolitical strife.

The S&P 500 closed 0.71% lower at 7,631.95 points, the Nasdaq Composite dropped 1.01% to 26,099.77, and the Dow Jones Industrial Average fell 0.78% to 52,772.49. Energy led gains in the S&P 500, while the Dow Jones Transportation Average, seen as a barometer for economic health, struggled among the session's biggest losers. The Philadelphia Semiconductor Index also declined, with all its constituents losing value on the day.