Stocks cautious in Asia as oil gains, yields rise

Shares opened cautiously on September 28 as oil prices surged, raising concerns about the likelihood of a truce between the United States and Iran. President Trump dismissed an Iranian offer to reopen the Strait of Hormuz, claiming Tehran desired a deal. Despite Trump saying talks would continue, Iran appeared unwilling to compromise.

Oil futures rose 1.6% to $106.00 a barrel, marking a 17% increase this September. US crude also gained 1.1% to $93.47 a barrel. High refining capacity has driven diesel prices to record highs, raising inflation risks. Central banks have responded with rate hikes, possibly with the RBA next in line. Markets now project a 66% chance of the Federal Reserve raising rates twice in October, with 90 basis points of tightening priced out to late 2027.

Simultaneously, robust US economic data has sustained expectations for corporate earnings, buoying equities. The Atlanta Fed’s GDPNow predicts 5.0% growth this quarter. Asia and Europe have experienced robust activity, driven by AI investment. This surge in growth and resilience to high energy prices may justify higher rates while equity prices remain near records, according to JPMorgan's Bruce Kasman.

Japan’s Nikkei rose 0.8%, while South Korean stocks fell 0.6%. MSCI’s Asia-Pacific index outside Japan slipped 0.2%. European indices also saw modest gains, while Wall Street saw mixed results. US 30-year Treasury yields climbed to 5.5185%, nearing their highest since 2004, up 27 basis points this month. Two-year yields surged 55 basis points in anticipation of Fed rate hikes.

Higher yields boost borrowing costs and reduce company earnings by raising discount rates. The US data calendar is loaded with inflation, GDP, manufacturing, and jobs releases, with the key September payrolls report expected on October 2. The dollar index rose to a two-month peak at 101.39, the euro fell to $1.1380, and the yen edged up to 157.53.