Stocks cautious in Asia as oil gains, yields rise

SYDNEY, 28 SEPTEMBER 2026 —

Japan's Nikkei gained 0.8%, while South Korean stocks dipped 0.6% and MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2%.

Over the weekend, US president Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, claiming Tehran was desperate to make a deal. Trump said talks would continue this week, though Iran shows no sign of watering down its proposals. Brent futures quickly rose 1.6% to US$106.00 a barrel, bringing gains so far this month to 17%, while US crude futures added 1.1% to US$93.47 a barrel.

A dearth of refining capacity has in turn lifted diesel prices to all-time highs far above crude, 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 66% 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 Atlanta Fed's GDPNow measure is forecasting growth of a racy 5.0% for this quarter.

Activity has also proven upbeat in Asia and Europe, thanks in part to the boom in AI investment. "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." Bonds fear higher for longer Japan's Nikkei gained 0.8%, while South Korean stocks dipped 0.6%. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2%. In Europe, EUROSTOXX 50 futures firmed 0.4%, while DAX futures gained 0.3% and FTSE futures added 0.2%. On Wall Street, S&P 500 futures fell 0.2%, while Nasdaq futures were flat.

Yields on 30-year Treasuries nudged up to 5.5185%, near their highest since 2004, having climbed 27 basis points just this month. Two-year yields have shot up 55 basis points this month in anticipation of Fed hikes. Mark Cabana, a rate strategist at Bank of America, sees further room for bonds to sell off as markets price higher Fed Funds.

"The repricing may not stop until there's clear evidence that financial conditions have become sufficiently restrictive," he warned. The spike in yields raises borrowing costs globally just as tech firms are borrowing billions to fund their AI expansion, while also lifting the discount applied to company earnings. The US data calendar is packed with readings on inflation, GDP, manufacturing and jobs.

The key September payrolls report on Friday is forecast to show a gain of 85,000 while the unemployment rate is expected to hold at 4.1%, with some chance of a dip to 4.0%. The recent spate of upbeat figures has boosted the dollar index to two-month peaks at 101.39. The euro was down at US$1.1380, having lost 2.0% so far this month.

The dollar edged up to 157.53 yen, after dipping on Friday when Japan's finance minister Satsuki Katayama said Trump had voiced concerns about yen weakness. Sterling was just above three-month lows at US$1.3228, having been helped somewhat by hawkish comments on rates from Bank of England governor Andrew Bailey. In commodity markets, non-interest-bearing gold was off 0.5% at US$4,262 an ounce, having fallen more than 4% this month as yields shot higher.

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