SYDNEY/LONDON - Global stocks fell on Monday, as oil jumped on the stalemate in US-Iranian talks, ahead of a week already packed with macroeconomic risk, while the dollar headed for its best monthly performance since June.
Brent futures rose as much as 3 percent to $107.16 a barrel, bringing gains so far this month to nearly 20 percent. Oil futures are nearly 50 percent above where they were before the conflict in the Middle East started in late February, while refined product prices have surged even more.
A dearth of refining capacity has lifted diesel prices to all-time highs, raising the risk that inflation will become embedded in pricing and wage decisions.
Central banks have responded with a round of rate hikes, with the Reserve Bank of Australia likely to be the next to tighten when it meets on Tuesday.
Markets now imply a 68 percent 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.
At the same time, a run of strong US economic data has supported expectations for corporate earnings even as bond yields surge, so underpinning equities.
"The global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades," said Bruce Kasman, chief economist at JPMorgan.
"Amidst strong growth and firming perceptions of resilience to high energy prices, it is no surprise that rates are moving higher while equity prices remain close to record levels," he added. "What is most notable about recent market moves is their extension of higher policy rates well beyond the coming year."
MSCI's All-World index was down 0.1 percent on the day and set for a 2.4 percent gain this quarter.
S&P 500 futures fell 0.3 percent, while Nasdaq futures shed 0.7 percent.
Bonds fear higher for longer
European equity markets were a bright spot.
Europe's STOXX 600 was up 0.4 percent, driven by classic defensive sectors — those that tend to be less influenced by concerns about economic growth — such as drugmakers, and by oil and gas stocks.
Yields on 30-year Treasuries rose 2 basis points to 5.517 percent, near their highest since 2004, having climbed 27 bps just this month. Two-year yields have shot up 55 basis points in September, in their largest monthly rise since February 2023, in anticipation of a wave of Fed hikes.
That said, market-based measures of inflation expectations have been relatively stable and for US markets at least, remain well off the highs back in May, said Steven Major, global macro advisor at Tradition.
"Consequently, the upward movement in nominal Treasury yields is predominantly explained by higher real yields and shifting policy expectations, rather than a runaway inflation risk premium," he said.
The US data calendar is packed with readings on inflation, GDP, manufacturing and jobs.
The recent spate of upbeat figures has boosted the dollar index to two-month peaks at 101.39. The euro was down at $1.1383, having lost 2.0 percent so far this month.
The yen burst higher against the dollar on Monday, after Japan's top currency diplomat Atsushi Mimura, in an interview with Reuters on Monday, delivered a stark warning to any would-be sellers, signalling his resolve to act against excessive falls in the currency. The dollar was last down 0.3 percent at 156.83 yen.
Meanwhile, gold fell 3 percent to $4,151 an ounce, having fallen nearly 7 percent this month as yields have risen.
