The 10-year Treasury yield hits 5.25% and stocks slide as Washington weighs its reply to Iran's revised Hormuz plan, with Brent back above $107
Monday's mediation went ahead as expected, but it has not yet produced anything markets can price. Iranian Foreign Minister Abbas Araghchi met Qatari mediators in New York to go through an amended version of Tehran's proposal, and US officials held a separate session with them. Trump confirmed that the two sides exchanged messages through the mediators. Araghchi said the Qataris would carry the ideas to Washington and that he hopes to get a final US answer by Tuesday. He described the sequence Iran has in mind: the US releases frozen funds, lifts sanctions and ends its naval blockade, steps he said could be "completed within four or five days, allowing the strait to reopen," with nuclear negotiations starting by day seven.
The sticking point is the nuclear file and the order of commitments. A US official told Al Jazeera the talks were "positive and constructive," but that there would be no agreement unless Iran's nuclear programme is addressed. The same official said Iran has shown some flexibility on nuclear issues, but the two sides remain apart on timing. The messaging from Trump himself stayed mixed. He posted "I offered them NOTHING!" on Truth Social in response to reports of sanctions relief, while a US official told CBS News he is willing to grant relief and release frozen funds if there is concrete progress on the nuclear programme. The military side has not paused: Yemen's defence ministry reported 356 strikes on Houthi targets over 24 hours, and Saudi Arabia has restarted its East-West pipeline after repairing drone damage.
There is one quietly positive number in the background. Crude exports through the Gulf rebounded to about 12.8 million barrels a day in September, according to figures cited by Al Jazeera, a wartime high but still well below the pre-war level of about 18.8 million. That has not been enough to calm prices. Brent settled at $105.28/bbl on Monday and WTI at $92.60, and both kept rising in Asian trading on Tuesday: Brent futures were up 2.7% at $107.16, taking the September gain to almost 18%, and US crude was up 1.9% at $94.16. Traders seem to be betting that even if a deal comes, the conflict will drag on for longer than hoped.
02Stock market & economy
Wall Street took Monday's pre-market losses into the close. The S&P 500 fell 0.77% to 7,683.69, the Nasdaq Composite lost 0.92% to 26,820.38, and the Dow dropped 347.11 points, or 0.67%, to 51,481.51. The bond market was again the driver. The 10-year Treasury yield rose about 6-7 basis points to 5.24-5.25%, its highest since 2007, the 30-year reached 5.57%, its highest since 2004, and the 2-year ended near 4.94%, up about 73 basis points in September alone (see the closing section). Futures pricing still puts the chance of a second consecutive Fed hike at the late-October meeting at around 70%. Fed Governor Lisa Cook added to the hawkish tone, warning that the AI build-out and higher oil prices will keep pushing on inflation.
Single stocks were a mixed bag. Nvidia rose after its $150 billion buyback increase and the launch of an AI safety platform, but the wider semiconductor group fell. Boeing closed nearly 7% lower after the FAA said it would not certify the 737 Max 10 until it has assessed a new software glitch, according to CNBC. MongoDB fell 18% after Meta hired its CEO to run an enterprise AI platform. Gold had its worst day in months: spot fell about 3.6-3.8% to around $4,131/oz, and silver lost 5% to about $61, as the dollar index held near 101.2 and the euro slipped to about $1.137. US stock futures were little changed overnight.
In Asia on Tuesday, Japan's Nikkei fell 1.1% and the Topix 1.7%, Hong Kong's Hang Seng lost 0.6% and Korea's Kospi 0.4%. The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.60%, its fourth hike this year and the highest level since 2011, in a unanimous decision. The RBA said the Middle East conflict "has broadened" and that energy prices are much higher than it assumed in August, and it also pointed to AI-related demand pushing up prices for technology goods. That is a close match to the Fed's own worries, and it makes the RBA the latest central bank to tighten in response to the oil shock after the ECB's hike on 10 September. The week's key US data are still to come: August PCE inflation and Micron's earnings on Wednesday, manufacturing on Thursday and the September jobs report on Friday.
In Europe, the STOXX 600 ended Monday flat, and the AEX gained 0.4% to 1,116.12, as covered in yesterday's brief, with Shell and SBM Offshore helping. With Brent rising further overnight and Asian stocks lower, Europe looks set for a softer start on Tuesday.
For the unhedged USD sleeve (MSCI World ETF, S&P 500 ETF, High Dividend Yield ETF), Monday confirmed the pattern of the past week: every leg higher in oil feeds into Treasury yields, and yields above 5.2% weigh most on the long-duration tech names that dominate MSCI World ETF and S&P 500 ETF. Nvidia's buyback cushions the largest single holding, but the rest of the chip sector did not share in it. High Dividend Yield ETF's energy and value tilt makes it the most resilient of the three on days like this. The firmer dollar also helps all three when measured in euros. For AEX index ETF and EURO STOXX 50 ETF, higher Brent is a direct threat to eurozone inflation, but the AEX's heavy Shell weighting keeps working as a partial hedge. The bigger risk for European equities is spillover from the US bond market: higher Treasury yields pull Bund yields up with them, which could undo the relief Lagarde signalled on Monday when she said higher long-term rates are already doing part of the ECB's work.
03Also in the news
There was no progress on Russia-Ukraine diplomacy. Zelensky said on Monday that Russia has begun a new wave of mobilisation and plans to recruit more foreign fighters, citing Ukrainian intelligence that more than 8,000 North Korean troops are in Russia and another 10,000 are being prepared. He also said North Korea has started producing Shahed-type attack drones with Russian help. Putin has signed a decree raising the official size of the Russian armed forces to about 2.44 million. Strikes continued on Ukrainian cities, including Kyiv, Dnipro and Zaporizhzhia. With the Kremlin having already dismissed the US-floated energy ceasefire, this front offers no relief on European winter gas prices.
04Off the beaten path
why the 2-year yield tells the real story this month
The 10-year Treasury yield gets the headlines, because 5.25% is a number last seen in 2007 and it drives mortgage rates and equity valuations. But the bigger move this month has been in the 2-year yield. It has risen about 73 basis points in September to around 4.94%, which is an unusually large move for a single month.
The two yields reflect different things. The 2-year closely tracks what markets expect the Fed to do over the next couple of years, so a jump there is a direct repricing of policy. After a run of hot PMIs, hawkish Fed speakers and rising oil, markets now price roughly a 70% chance of an October increase, the second in a row, and the 2-year has moved to reflect that. The 10-year includes those expectations plus a "term premium", the extra return investors demand for locking money up for a decade, which has been pushed up this year by heavy government borrowing and the wave of corporate debt used to fund AI data centres. The 30-year at a 2004 high shows that premium clearly.
The gap between the 10-year and 2-year yields is now about 31 basis points. When short-term yields rise faster than long ones, economists call it bear flattening, and it usually means the market believes the central bank will tighten into a slowing economy, which is exactly what a 48.1 consumer sentiment reading and 4.6% inflation expectations suggest. For an equity portfolio, the practical takeaway is that the 2-year is the one to watch on Wednesday and Friday. A soft PCE print or weaker payrolls would hit the 2-year first, and that would be the clearest signal that October hike odds are falling, well before the 10-year catches up.
Compiled from Yahoo Finance, CNBC, Al Jazeera, CBS News, The Washington Times (via AP), Kitco News, Fortune, Trading Economics, ABC News (Australia), Reserve Bank of Australia, FXStreet, SBS News, Ukrainska Pravda, and centralbank.watch. This is a news summary, not investment advice — no position sizing or timing recommendations are implied.