The strikes widen the economic footprint of the same conflict that has been escalating for months: the war between the United States and Iran, whose latest round included US strikes Iran calls a war crime and Iranian retaliation across the Gulf. Energy markets have been the war's most reliable barometer, and on Tuesday they moved first.
Trump Predicts Cheap Gas, Bonds Price the Opposite
President Trump said on social media that oil will "drop precipitously" when the US wins the war with Iran, predicting gasoline will ultimately fall below $2 a gallon. The national average currently stands at $4.15.
Markets, for now, are pricing the risk rather than the promise. Anxiety over energy costs pushed the 10-year Treasury yield briefly above 4.8% in the session, a level that pressures stock valuations and mortgage rates alike, and equities opened in the red.
The Yen Wakes Up, Copper Sets a Record
Two other corners of the market moved sharply. The Japanese yen strengthened to its best level since February, propelled by growing expectations that the Bank of Japan will raise rates this month; hotter-than-expected wage data on Tuesday added momentum. A BoJ hike would mark another step away from the ultra-loose policy that kept the yen cheap for years.
Copper futures, meanwhile, hit a new record on concerns that Trump could impose new import taxes on refined copper. The trade front is already busy: Canada's retaliatory tariffs of up to 50% on certain American products take effect today.
The Week's Main Event Is Friday
The number the whole market is waiting for is Friday's consumer price index for August. Economists expect headline inflation to hold at an annual 3.4%, a reading that will shape whether the Federal Reserve can afford to look past the oil spike, or has to treat it as the start of a new inflation problem. Until then, the business story of the week is written in the price of a barrel.
Frequently Asked Questions
- Why is oil approaching $100 a barrel?
- Houthi militants backed by Iran struck energy infrastructure in Saudi Arabia, adding a supply threat on top of the ongoing US-Iran war. Brent crude rose above $99, its highest since July, before easing.
- Why are stocks falling if oil companies benefit from expensive oil?
- Higher energy prices feed inflation fears, which pushed the 10-year Treasury yield briefly above 4.8%. Higher yields weigh on stock valuations across the market.
- What is happening with the Japanese yen?
- It reached its strongest level since February on expectations the Bank of Japan will raise rates this month, reinforced by hotter-than-expected wage data.
- What should investors watch this week?
- Friday's August CPI report. Economists expect headline inflation to hold at 3.4% annually, a key input for the Federal Reserve's next moves.
