(Sept 10): A resurgence in oil prices drove stocks and bonds lower, with losses deepening as the Treasury said it will purchase up to US$6 billion of longer-dated government debt.

The reaction shows some investors had expected an even larger increase. Ten-year yields hit the highest since 2023. Brent crude topped US$101 as Middle East tensions fueled worries about energy disruptions, adding to bets the Federal Reserve (Fed) will raise rates to curb potential inflationary pressures. The S&P 500 fell for a third straight day. Apple Inc. unveiled a foldable smartphone.

President Donald Trump downplayed concerns about oil prices and a war he said will end after the midterm election. But hostilities show little sign of easing. Iran will escalate counterstrikes if the US continues attacking its territory and infrastructure, according to a senior official from the Islamic Republic. 

“The temperature just got turned up again,” said Kenny Polcari at SlateStone Wealth. “The risk premium is alive and well, and the risk to energy supplies coming out of the Gulf is real.”

Despite the geopolitical risks, the dollar remained at a near seven-month low. The yen rose. Treasury Secretary Scott Bessent challenged traders to test his resolve on boosting Japan’s currency, saying when he wades into markets these days he’s effectively doing so with inside information.

The spike in energy costs comes as traders brace for this week’s key inflation data. The issue of elevated prices and whether the Fed will hike rates for the first time in three years could dominate the Sept 15-16 policy meeting.

With officials concerned by persistently high inflation, but divided over how monetary policy should respond in the near term, new evidence of price pressures could tilt the Federal Open Market Committee into a hike. Cooler reports are likely to keep the Fed on hold, as it’s been through five previous meetings this year.

The Bureau of Labor Statistics will release August data for the producer price index on Thursday, followed by the consumer price index on Friday.

“A hot CPI print would all but seal a September hike and underpin a firmer dollar,” said Elias Haddad at Brown Brothers Harriman & Co. “A cooler reading would strengthen the case for a hold and leave the dollar vulnerable to a dovish Fed repricing.”

Money markets assigned an around 60% probability of a September Fed hike.

Uploaded by Isabelle Francis