Trump rules out using nuclear weapons against Iran

Oil prices surged on Tuesday as tensions between the United States and Iran intensified following a weekend military exchange, with US President Donald Trump threatening harsh retaliation. The recent clash has reignited concerns about rising inflation, prompting central banks to potentially raise interest rates, which has contributed to the volatility of equity markets.

The standoff remains stagnant, with Iran maintaining control of the strategic Strait of Hormuz and the US continuing a blockade of Iranian ports. On Sunday, US forces targeted an Iranian island in the waterway, sparking a retaliatory attack by Iran on US military bases in the Middle East. The escalating conflict has raised fears of a return to major hostilities, with Trump warning of a strong response.

US officials confirmed that the US struck rocket launchers on Iran's Larak island to prevent the planting of mines in the strait, while Iran retaliated by targeting US forces in Jordan and the UAE. This latest series of strikes follows a period of relative calm, but the strategic importance of keeping the Strait open and stalled negotiations leave the situation susceptible to further escalation.

National Australia Bank's Rodrigo Catril noted that while the initial actions were measured, both sides are wary of a prolonged conflict. Trump is set to meet with oil refining executives to address the soaring domestic petrol prices, a political issue for his party ahead of the November midterms. Meanwhile, global stock markets experienced a mixed reaction, with most down but Asian stock indices like Tokyo, Hong Kong, and Shanghai falling, while Taipei, Manila, and Jakarta rose.

Key economic data releases, including jobs and consumer price index reports, will be closely watched for clues on potential Federal Reserve interest rate hikes. The yield on 10-year US Treasuries reached its highest level since January 2025, fueled by expectations of inflationary pressures and higher borrowing costs, affecting bond markets across Asia, including a 30-year high for Japanese government bond yields.

In related company news, fast-fashion retailer Shein saw a nearly nine percent drop in shares following its IPO in Hong Kong, raising US$1.7 billion. MediaTek, a chipmaker backed by US tech giant Nvidia, saw a nearly ten percent increase in shares after the US company announced a US$3.5 billion investment.