TMGM Daily Market Breakfast: 2 September 2026

Morning Snapshot

• The United States expanded its military action against Iran with strikes on IRGC air-defence and naval targets near the Strait of Hormuz after President Donald Trump said Iranian forces were attempting to place sea mines in the waterway.
• Oil prices surged as Middle East supply risks intensified, with Brent moving back above $95 per barrel and WTI at one stage climbing into the mid-$90s before later easing back toward $89.
• U.S. Treasury yields climbed as markets focused on the inflation implications of higher energy prices, with the 10-year yield near 4.79% and the 30-year around 5.28%.
• The Reserve Bank of New Zealand raised its Official Cash Rate by 25 basis points to 2.75% but signalled a gradual tightening path, and the New Zealand dollar fell sharply after the decision.
• Euro area inflation accelerated to 3.3% in August while core inflation eased to 2.4%, reinforcing expectations of another European Central Bank rate increase next week.
• Bundesbank President Joachim Nagel said markets see more than a 95% probability of a September ECB rate hike while maintaining that policy beyond that should remain meeting by meeting.
• Bank of Japan officials reinforced expectations of a September rate increase, with markets fully pricing a 25 basis point move and the yen also supported by renewed intervention speculation after U.S.-Japan talks.
• India's economy expanded 7.8% in Q1 FY27, prompting upgrades to growth forecasts and firmer expectations that the Reserve Bank of India will need to tighten policy further.
• Gold came under heavy pressure as higher oil prices, rising global bond yields and a stronger U.S. dollar outweighed demand for traditional geopolitical hedges.
• The U.S. dollar strengthened broadly as rising Treasury yields and firmer Federal Reserve tightening expectations combined with heightened geopolitical tensions.

Market Developments

Energy

Brent crude rose back above $95 per barrel, its highest level in more than a month, while WTI climbed into the mid-$90s during Asian trade before later easing back to around $88.70-$89.10 as traders took profits amid continued concern over Strait of Hormuz supply risks.

Government Bonds

U.S. 10-year Treasury yields traded near 4.79%, the highest since January 2025, while the two-year rose to around 4.39% and the 30-year stood near 5.28% as higher energy prices fed inflation concerns.

Foreign Exchange

The U.S. Dollar Index traded around 99.75, its highest level in more than two weeks, while NZD/USD fell about 1.45% to around 0.5810 after the RBNZ decision and USD/JPY retreated toward 159.65 after earlier touching 160.39 as intervention risks resurfaced.

Precious Metals

Gold fell more than 2.3% on Tuesday and remained under pressure on Wednesday around $4,310 after touching $4,282, its lowest level since August 7, as rising yields and a stronger dollar weighed on bullion.

U.S. Equities

The Dow Jones Industrial Average traded near 52,750, down roughly 450 points or 0.85%, after Central Command confirmed U.S. strikes on IRGC targets inside Iran.

Geopolitics & Energy

U.S. Strikes Iranian Military Targets Near Hormuz as Regional Conflict Escalates

The United States widened its military action against Iran after President Donald Trump said U.S. forces were striking Iranian targets near the Strait of Hormuz because Iranian forces were attempting to place sea mines in the waterway. Trump also said Tehran fired eight missiles at a U.S. base in Jordan and that all were intercepted.

Later, U.S. Central Command said it had completed a wave of strikes against Islamic Revolutionary Guard Corps targets in Iran, including air-defence and naval sites. The escalation followed reports of explosions in Chabahar and Bandar Abbas and came after Iran had hit two oil tankers in the region earlier in the week, keeping attention fixed on the security of shipping through the Gulf.

The latest fighting has sharpened concern over the Strait of Hormuz, a critical route for global crude flows. The U.S. energy secretary said 17 million barrels of oil moved through the strait on Monday, the highest volume since the conflict began, underscoring both the scale of current traffic and the market sensitivity to any disruption.

Oil Jumps as Hormuz Supply Risks Return to the Forefront

Oil prices rose sharply as the U.S.-Iran escalation revived fears over Middle East supply and shipping routes. Brent moved back above $95 per barrel, its highest level in more than a month, while WTI extended gains for a third straight day and at one stage traded in the mid-$90s, a fresh high since July 24, before later easing back toward $89.

The market reaction reflected renewed concern that rising tensions could disrupt crude and refined-product flows through the Strait of Hormuz. ING said record ICE gasoil cracks near $79 per barrel, U.S. diesel cracks well above $100 per barrel and steep backwardation in gasoil timespreads highlighted acute tightness in middle distillates as disruptions to Middle East and Russian diesel exports persisted.

API data cited in market coverage showed U.S. crude inventories fell by 2.6 million barrels last week, adding to the supply-sensitive backdrop. Negotiations between Washington and Tehran on reopening the Strait of Hormuz were described as stalled, while expectations for a slower recovery in Middle East supply kept inflation risks in focus.

Higher Energy Prices Push Yields Up and Weigh on Gold and Equities

U.S. Treasury yields climbed as markets treated the Middle East escalation primarily as an inflation shock rather than a classic flight-to-safety event. The 10-year yield traded near 4.79%, about four basis points higher and its highest level since January 2025, while the two-year rose to around 4.39% and the 30-year stood near 5.28%.

The move at the front end of the curve underscored how investors were repricing Federal Reserve expectations as oil prices rose. Coverage of the Treasury market noted that no rate cut was priced at any meeting through the end of 2027, while the earlier decline in the 30-year yield after the Treasury doubled the size of its long-dated buyback operation in August had been fully reversed.

Gold fell more than 2.3% on Tuesday and remained under pressure around $4,310 on Wednesday after touching $4,282, its lowest level since August 7. U.S. equities also weakened, with the Dow Jones Industrial Average down roughly 450 points, or 0.85%, near 52,750 after the strikes were confirmed.

Central Banks & Macroeconomics

RBNZ Raises OCR to 2.75% but Signals Gradual Tightening

The Reserve Bank of New Zealand raised its Official Cash Rate by 25 basis points to 2.75%, matching expectations, but the New Zealand dollar fell sharply as investors focused on the central bank's cautious guidance. NZD/USD dropped about 1.45% to around 0.5810, with the currency also trading near 0.5855 earlier in the Asian session.

The RBNZ said a gradual removal of monetary stimulus was appropriate to bring inflation back toward the 2% target midpoint while continuing to support growth and employment. Policymakers said acting now reduced the risk of having to raise rates more aggressively later, but stressed that future decisions would depend on the balance of risks around medium-term inflation.

Governor Anna Breman said the OCR trajectory remained broadly aligned with the bank's previous projections and indicated policymakers may need more time to assess the full impact of the current stance. She also pointed to the strength of the economic recovery as a key factor in determining whether further tightening would be needed.

Euro Area Inflation at 3.3% Reinforces Case for September ECB Move

Euro area headline inflation rose to 3.3% year on year in August from 2.9% in July, in line with expectations, while core inflation eased to 2.4% from 2.5%. The increase in headline inflation was driven mainly by energy, with energy inflation accelerating to 14.3% from 10.3%, while services inflation fell to 3.0% from 3.3% and non-energy industrial goods inflation rose to 1.2% from 0.9%.

The inflation data strengthened expectations that the European Central Bank will raise rates again next week. Euro area manufacturing PMI was finalised at 52.7, broadly in line with the flash 52.8 reading, Germany's PMI was revised up to 54.3 from 54.1, and the unemployment rate held at 6.4% in July, providing a backdrop of still-resilient activity.

Bundesbank President Joachim Nagel said markets see more than a 95% probability of a September rate hike and argued that markets have a good understanding of the ECB's reaction function. At the same time, he stressed that policy after September should remain meeting by meeting because volatile oil and gas prices, financial-market instability and broader uncertainty make firm forward guidance difficult. Nagel also said he saw no second-round effects from the latest energy shock, describing that as good news on inflation.

BoJ Rate-Hike Expectations Firm as Yen Draws Support from Policy and Intervention Signals

Expectations for a Bank of Japan rate increase this month strengthened after Governor Kazuo Ueda and board member Hajime Takata delivered hawkish signals and markets fully priced a 25 basis point move at the 18 September meeting. Ueda said policymakers need to pay greater attention than before to upside risks as underlying inflation approaches 2%, while Takata said the bank needed to consider a broad range of options and conduct rate hikes nimbly rather than at a conventional semi-annual pace.

The yen also drew support from renewed intervention speculation after Japanese Finance Minister Satsuki Katayama said she met U.S. Treasury Secretary Scott Bessent and both sides agreed that orderly yen moves are critical for global market stability. Bessent separately said he had emphasised the importance of sound monetary-policy formulation and communication to anchor inflation expectations and backed Japan's steps to address yen undervaluation.

USD/JPY retreated toward 159.65 after earlier reaching 160.39, while EUR/JPY fell to around 184.66. Japan's 10-year government bond yield had earlier reached 3% for the first time since 1996, highlighting the scale of the domestic repricing in rates.

Fed Hike Expectations Stay Elevated as Officials Focus on Inflation Risks

Federal Reserve tightening expectations remained firm as higher oil prices added to inflation concerns and officials kept the option of another rate increase open. Fed Governor Michael Barr said inflation remained too high and that a rate hike could become necessary if price pressures failed to moderate soon.

Market pricing cited in coverage showed around 17 basis points of hikes priced for the 16 September FOMC meeting, with some reports putting the probability of a September move near 70%. Attention is increasingly shifting to August inflation data, which will be released next Friday, after commentary suggested the inflation print could be more important than this week's jobs report in shaping the policy decision.

India's 7.8% Growth Print Lifts Forecasts and Tightening Expectations

India's economy expanded 7.8% in Q1 FY27, prompting institutions to revise up growth forecasts and strengthen expectations for further Reserve Bank of India tightening. Standard Chartered raised its full-year FY27 GDP forecast to 7.2% from 6.6% and projected 7.4% growth in Q2, while commentary said activity was running ahead of the RBI's 6.7% baseline.

The stronger growth backdrop has sharpened focus on inflation and policy rates. Societe Generale projected three consecutive 25 basis point repo-rate increases in October, December and February, which would lift the rate from 5.25% to 6.00% by early 2027, while UOB said it expected two back-to-back 25 basis point hikes starting in December as headline inflation risked breaching the upper end of the RBI's 2% to 6% tolerance band in the October-December quarter.

Analysts pointed to persistent food and fuel pressures, stronger household inflation expectations and hawkish signals in the August RBI minutes as reasons why the central bank may need tighter policy even as growth remains robust.

Australian GDP Beats Forecasts as Fed Strength Keeps Pressure on the Aussie

Australia's economy grew 2.1% year on year in the second quarter, above expectations of 1.8%, adding to expectations that the Reserve Bank of Australia may need to tighten policy further. TD Securities said the stronger details in the GDP report added to the case for a 25 basis point rate increase at the end of the month, which would take the target cash rate to 4.60%.

Even so, the Australian dollar remained under pressure against the U.S. dollar as firmer Federal Reserve tightening expectations supported the greenback. AUD/USD traded around 0.7135, down about 0.1% on the day, while the stronger Australian data helped the currency outperform the New Zealand dollar after the RBNZ decision.

Trade & Regional Developments

China Faces Rising Pressure From Weak Demand and Trade Barriers

Pressure on China's trade model intensified as weak domestic demand coincided with growing external restrictions linked to trade and energy flows. Commentary highlighted that U.S.-led measures targeting links with Iran and Venezuela were constraining low-cost energy access, while China's trade surplus was described as equivalent to 1% of global GDP.

Official PMI figures released earlier showed a slight improvement in manufacturing but further deterioration in non-manufacturing, with both sectors remaining below the threshold between contraction and expansion. Unofficial figures pointed to faster manufacturing expansion, leaving investors to weigh whether China is generating an even larger exportable surplus or whether broader growth risks are mounting as policy barriers rise in major export markets.

Upcoming Key Events

• U.S. ADP Employment Change for August — 12:15 GMT: The private-sector employment report is due Wednesday, with expectations for 48,000 jobs added after 44,000 in July.
• U.S. August Employment Report — null: Friday's payrolls report is expected to show 58,000 jobs added and an unemployment rate unchanged at 4.1%.
• European Central Bank Policy Meeting — Next week: Markets are positioned for another ECB rate decision after August euro area inflation rose to 3.3%.
• Bank of Japan Policy Meeting — 18 September: Markets are fully pricing a 25 basis point Bank of Japan rate increase at the September meeting.