Headlines:

• Oil prices jump as US and Iran exchange strikes; prolonged stalemate keeps the downside limited
• Iran says US must bear full responsibility for consequences of escalation
• IRGC claims that a supertanker has caught fire after being struck by naval mines in Strait of Hormuz
• US futures keep lower to start the new week
• This gold analysis may be showing new gold buyers coming in today
• Gold erases most of the Treasury-led gains as Fed Chair Warsh retightens financial conditions
• German states see higher inflation prints in August
• Heads up: Month-end flows might factor into play in the day ahead

Markets:

• WTI crude oil up 3.7% to $86.50
• JPY leads, USD lags on the day
• Gold up 0.1% to $4,457
• European indices mixed; S&P 500 futures -0.2%
• US 10-year yields flat at 4.724%
• Germany 10-year yields up 2 bps to 3.31%, highest since 2011

It was a quieter session in terms of headlines, as markets continue to digest Fed Chair Warsh's hawkish twist from Friday last week. Month-end positioning may also be encouraging some caution, with market moves relatively limited so far today, as portfolio rebalancing flows around month-end often amplify or mute directional moves.

Oil prices continue to hold higher after the US and Iran exchanged military strikes over the weekend. Tensions remain elevated, and the situation is yet another signal that the two sides are nowhere near finding common ground. WTI crude is up 3.7% to $86.50, while Brent crude has crossed above $91 on the day. The risk premium in crude is being underpinned by the Strait of Hormuz, the chokepoint through which roughly a fifth of globally traded oil passes; the reported naval-mine strike on a supertanker there keeps supply-disruption risk firmly on the radar for energy markets.

On the data front, inflation readings from key German states came in hotter in August than in July. That aligns with expectations of a slightly stronger national print due later. It does not materially change the picture for the ECB heading into September, but it at least reaffirms the existing trajectory of sticky regional price pressures in the euro area's largest economy.

In major currencies, the dollar is a touch softer. EUR/USD is up 0.1% to 1.1600, with large option expiries in play. USD/JPY is down 0.2% to 159.67, while USD/CAD is down 0.1% to 1.3885.

Elsewhere, gold is little changed, holding around $4,457 after Friday's drop, and Treasuries are also fairly subdued. US 10-year yields are flat at 4.724%, but European yields are pushing higher. Germany's 10-year yield is up nearly 2 bps to 3.31% — its highest level since 2011 — while France's 10-year yield has risen to 4.15%, the highest since 2008. Rising borrowing costs at these levels feed through to government debt-service burdens and corporate financing conditions across the euro area, a dynamic worth watching as national budgets come under renewed scrutiny.

With European bond markets reacting in this way, pressure is set to build on the ECB as traders begin to signal their views on the rates and inflation outlook. Upcoming milestones to watch include the German national inflation print due later today and the ECB's September rate decision.

Source: investingLive