Oil Prices Soar as US-Iran Tensions Escalate

Share markets in Asia started cautiously on Monday as oil prices surged and bond yields rose. Oil prices jumped after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, suggesting talks would continue this week.

The price of crude oil quickly rose 1.6% to $106.00 a barrel, bringing gains so far this month to 17%, while diesel prices soared 1.1% to $93.47 a barrel. The surge in oil prices has lifted diesel prices to all-time highs, raising concerns about inflation and wage decisions.

Central banks have responded with interest rate hikes, with the Reserve Bank of Australia likely to be the next to tighten when it meets on Tuesday. Markets now imply a 66% chance the Federal Reserve will hike for a second straight meeting in October, with around 90 basis points of tightening priced out to late next year.

Despite the surge in bond yields, strong US economic data has supported expectations for corporate earnings and underpinned equities. The Atlanta Fed's GDPNow measure is forecasting growth of 5.0% for this quarter, while activity has proven upbeat in Asia and Europe thanks in part to the boom in AI investment.

Bruce Kasman, chief economist at JPMorgan, said the global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades. He noted that rates are moving higher while equity prices remain close to record levels.