Asian financial markets started the week on a cautious note as rising tensions between the U.S. and Iran pushed oil prices higher and revived concerns about inflation.

At the same time, hawkish remarks from Fed Chair Kevin Warsh strengthened expectations for a September rate hike, keeping U.S. Treasury yields elevated.

Oil Prices Jump on Geopolitical Risk

Oil prices climbed sharply following renewed military tensions between the U.S. and Iran.

• Brent: up 2.7% to $90.51 per barrel

• WTI: up 2.6% to $85.57 per barrel

The risk of supply disruption in the Middle East has added a geopolitical premium to oil prices and raised concerns that higher energy costs could keep inflationary pressures elevated.

Fed Rate-Hike Expectations Pressure Markets

Following Warsh’s remarks, the probability of a Fed rate hike at the September meeting rose to around 57%.

U.S. Treasury yields remained high, with the 2-year yield holding near 4.34%. Elevated yields have weighed on risk assets and kept overall market sentiment cautious.

Asian Equities Move Lower

Major regional equity indexes declined:

• Nikkei 225: -0.4%

• MSCI Asia-Pacific ex-Japan: -0.6%

• China’s CSI 300: -0.4%

In China, the official manufacturing PMI improved to 49.8 in August, up from 49.2 in July, but remained below the 50-point threshold, signaling continued contraction in factory activity.

Gold Falls Despite Rising Geopolitical Risk

Gold prices fell 0.6% to around $4,425 per ounce, after dropping 3.2% in the previous session.

The move shows that, in the short term, high Treasury yields and stronger expectations for Fed tightening are outweighing safe-haven demand.

It is also a useful reminder that “geopolitical tension = higher gold” is not a guaranteed formula, however much markets occasionally behave as if it were carved into stone.

Market Outlook

In the coming sessions, investors will focus on three key drivers:

U.S.–Iran tensions → oil prices and inflation risk

Fed rate-hike expectations → Treasury yields and U.S. dollar strength

U.S. payrolls and CPI data → the likelihood of a September Fed move

With several major factors moving at the same time, volatility across oil, equities, gold, and currency markets could remain elevated.

This article is for informational and market commentary purposes only and should not be considered investment advice.

Source: Reuters