Fed Chair Kevin Warsh delivered a hawkish Jackson Hole address late last week, explicitly stating that underlying inflation is not slowing and reaffirming interest rates as the Fed's predominant policy tool, pushing September rate-hike probabilities to approximately 57–60%. Compounding the inflation picture, US forces struck Iranian rocket launchers on Larak Island in the Strait of Hormuz over the weekend — the first direct military exchange in over a month — triggering Iranian retaliatory attacks on US forces in Jordan and the UAE and sending Brent crude surging above $90 per barrel, a move that adds a direct supply-risk premium to the roughly 6–8 million barrels per day transiting that chokepoint. US Treasury Secretary Scott Bessent, speaking at the G20 finance ministers meeting in North Carolina, signalled further sanctions pressure on Iran-linked entities, including secondary sanctions risks on connected Chinese banks, adding a geopolitical overlay to an already complicated macro picture. The combination of a more hawkish Fed, oil-driven inflation risk, and Middle East escalation dominated sentiment through Monday's session.
Across asset classes, the Hormuz premium and Warsh's remarks pushed US 10-year Treasury yields up 6 basis points toward 4.73% and the 2-year up a sharp 14 basis points to 4.34%, steepening the bear-flattening dynamic and squeezing rate-sensitive equities. The S&P 500 fell 0.58% and the Russell 2000 dropped 1.92%, with Technology (-1.12%), Industrials (-2.05%), and Utilities (-2.20%) leading the decline, while Energy added 2.04% on the oil surge. For Asia-Pacific markets opening Tuesday, the read-through is cautious: elevated US yields are headwinds for growth and rate-sensitive sectors, while oil strength provides a selective tailwind for Australian energy and LNG names but is broadly inflationary for energy-importing economies in the region. ASX 200 futures had pointed approximately 0.4% lower ahead of the local open, though the physical ASX 200 closed Monday up 0.42% — the local session will need to reconcile that overnight deterioration in US sentiment.