US-Iran Tensions Send Oil Prices Soaring, Rate Hike Odds Jump

Global markets were volatile on Monday as tensions between the US and Iran escalated, pushing oil prices higher. The conflict extended into its sixth month, with Brent crude futures climbing 3.6% to $91.29 a barrel, while West Texas Intermediate (WTI) crude traded at $86.41, up 3.6%. Suvro Sarkar, head of energy research at DBS, said 'we see more chances of contained confrontation rather than any sustained escalation in the conflict.'

The market's reaction to the rising tensions was also reflected in the probability of a September Federal Reserve rate hike, which increased to 57% after hawkish remarks from Federal Reserve Chair Kevin Warsh. This sent short-term Treasury yields sharply higher and flattened the yield curve.

Michael Feroli, chief U.S. economist at JPMorgan, said 'we continue to expect that a hike won’t come until December, though agree that the September meeting is live.' He added that regardless of the exact timing of hikes, Warsh’s speech suggested a chair more willing to translate his concern about inflation into a policy tightening.

The Canadian dollar strengthened against its U.S. counterpart, trading at $1.3900 per US$1, while the U.S. dollar index slid 0.13% to 99.57.