Risk sentiment deteriorated sharply into the August month-end close as two distinct shocks collided: Fed Chair Kevin Warsh's hawkish Jackson Hole remarks drove September rate-hike probabilities to 57–62% (from ~35%), steepening the yield curve with the US 2-year surging 14 basis points to 4.34% and the 10-year adding 6 basis points to 4.73%; simultaneously, US strikes on Iranian rocket launchers at Larak Island in the Strait of Hormuz — met with Iranian retaliation against US positions in Jordan — pushed Brent crude intraday above $90 per barrel, amplifying inflation concerns and tightening the policy calculus for the Fed, ECB, and RBA alike. The VIX edged higher to 14.92 (+2.83%), reflecting a measured but real uptick in hedging demand, while the Russell 2000's outsized decline of 1.92% signalled that rate-sensitive, domestically exposed US small-caps bore the brunt of the repricing.
For Asia-Pacific markets opening today, the transmission channels are clear and mostly negative: higher US yields and a firmer USD bias pressure regional rate-sensitive assets, while the oil spike above $90 adds imported inflation risk for energy-importing economies including Japan and South Korea — both of whose equity markets already sold off on Monday. The notable exceptions are commodity-exporting economies, with the AUD holding firm at 0.7167 (+0.06%) on the back of copper (+1.99%), lithium carbonate (+3.59%), and aluminium (+1.37%) strength, providing a relative cushion for the ASX resources complex even as the broader ASX 200 closed down 0.98% at 9,038.2. EU CPI flash estimates due at 19:00 AEST tonight will be the next macro catalyst, with the headline forecast at 3.3% year-on-year against a 2.9% prior — an upside print would further entrench the higher-for-longer rate narrative globally.