Stocks cautious in Asia as oil gains, yields rise

Asian stock markets opened cautiously on Monday as oil prices surged and bond yields rose, amid uncertainty over a potential Iran-US deal. The U.S. President, Donald Trump, dismissed an Iranian proposal to reopen the Strait of Hormuz, stating Tehran was eager to finalize a deal. However, Iran remained steadfast in its proposals.

Brent futures rose 1.6% to $106.00 a barrel, marking a 17% gain for the month, while U.S. crude futures added 1.1% to $93.47 a barrel. Diesel prices hit all-time highs, driven by refining capacity shortages, which could lead to inflation embedded in pricing and wage decisions. Central banks responded with rate hikes, with the Reserve Bank of Australia likely to follow soon.

Markets now suggest a 66% chance of a Federal Reserve hike in October, with around 90 basis points of tightening expected by year-end. Strong U.S. economic data has bolstered investor confidence in corporate earnings despite rising bond yields. Global growth appears robust, particularly in Asia and Europe, boosted by AI investment.

Bruce Kasman, JPMorgan's chief economist, noted that broad-based strength has emerged in recent years, making higher rates and equity prices somewhat unsurprising. Notably, policy rates are expected to remain high beyond the next year. Bond yields, particularly for 30-year Treasuries, have surged to near their highest since 2004, with 2-year yields climbing 55 basis points this month due to anticipated Fed hikes.

This rise in yields raises borrowing costs worldwide as tech firms invest heavily in AI expansion, and it increases the discount applied to company earnings. U.S. economic data, including September's payrolls report and unemployment rate, will be closely watched, with expectations of an 85,000 jobs gain and a 4.1% unemployment rate.

The dollar index has hit two-month peaks, while the euro and yen have weakened. Commodity markets saw gold decline slightly due to high yields.