Oil prices drove markets after US–Iran ceasefire talks stalled, with Brent rising above US$108/bbl. Global bond yields surged to multi-year highs and equities weakened. Gold fell, while the USD and NZD were little changed

US equities declined as global bond yields surged further, extending moves seen during yesterday’s Asian session after President Trump rejected Iran’s proposal to reopen the Strait of Hormuz. The S&P 500 fell close to 1% intraday, as higher energy costs reinforced expectations of further Federal Reserve tightening and weighed on risk appetite. US Treasury yields reached fresh multi-year highs, although both equities and bonds partially recovered as oil prices retreated. The US dollar was little changed, while precious metals sold off, with gold falling more than 3% towards US$4,100 an ounce.

Iran and the US remained far apart over a ceasefire agreement and the reopening of the Strait of Hormuz. Tehran said it was standing by a proposal rejected by President Trump, although Iranian Foreign Minister Abbas Araghchi was reportedly still due to meet mediators in New York. Front-month Brent crude futures traded above US$108 per barrel before retreating on reports that Trump was open to sanctions relief linked to nuclear issues. The contract, which expires this week, remains at a significant premium to the more actively traded December contract, signalling near-term supply tightness.

Gold’s pullback in September has not been accompanied by the ETF outflows typically associated with a sustained price decline. Some analysts have noted that the divergence is unusually wide, with selling instead concentrated among fast-money investors such as hedge funds. Resilient ETF holdings and renewed central-bank purchases have cushioned the decline so far. However, ETF flows can lag price action, and a delayed adjustment in holdings could create a technical overhang, amplifying further weakness as gold approaches important support around the 2026 lows near US$4,000 an ounce.

Oil prices remained the key driver of volatile trading in US Treasuries. After yields moved higher during the Asian session, Brent’s rise above US$108 pushed them to fresh overnight highs. The 10-year yield peaked intraday at 5.27% before retracing as oil prices pulled back. With no material economic data to provide direction, macro factors dominated. European sovereign bonds also came under pressure - German 10-year Bund yields rose to 3.65%, the highest since 2009.

Currency-market moves broadly tracked developments in energy prices and rates. The rise in Treasury yields to session highs coincided with a firmer US dollar, although the net move was modest. The subsequent retracement left the dollar index little changed from the NZ close. The yen marginally outperformed after Japan’s top currency diplomat, Atsushi Mimura, reportedly said markets should heed the “very clear” message Tokyo and Washington sent last week on yen weakness.

The NZD traded steadily near 0.5665 for most of the offshore session, although it briefly spiked higher as oil prices retreated. The NZD crosses were little changed overall. NZD/JPY fell towards 88.80 before recovering above 89.00.

Trading was subdued in the local NZ fixed income session yesterday. Rates edged higher across the curve, reflecting a softer offshore backdrop as US Treasuries opened weaker in Asia. Swap rates closed 1–2bp higher, with a similar move in NZ government bond yields.

The Treasury will release its Pre-election Economic and Fiscal Update today, ahead of the 7 November general election. We expect the operating balance to remain on track to return to surplus by 2028/29. Finance Minister Willis sounded positive over the weekend about the PREFU numbers. NZDM will update the borrowing programme alongside the release, with markets focused on any change in gross issuance relative to the Budget baseline and details of forthcoming syndicated transactions.

The RBA is unanimously expected to raise the cash rate to 4.6%, with around 90% of the move priced. A follow-up increase in November remains a clear risk. With no new forecasts due, the focus will be on any dovish dissent and the post-meeting guidance. In the US, the Conference Board consumer confidence index and JOLTS job openings are scheduled for release.

Stuart Ritson is a senior Strategist at BNZ Markets.