Asia-Pacific markets: Gold plunges below $4,200, oil rises on Iran tensions

Summary:

• Crude oil gained at the opening after President Trump turned down Iran's seven-day offer to reopen the Strait of Hormuz, though he anticipates talks will continue this week.
• According to Iran's Fars News, a cruise missile was launched at a ship in the Strait, and Houthi attacks struck Riyadh, causing flight landings at King Khalid International Airport to be disrupted after blasts were heard.
• Trump stated he is looking "very seriously" at a US diesel export ban, and Goldman Sachs analysts estimated that such a ban would reduce US diesel prices by about 4% and increase European wholesale prices by about 2%. Goldman does not consider this its base-case scenario.
• Gold dropped sharply, breaking hourly support near $4,250, as yields rose and Federal Reserve rate-hike expectations hardened. Silver declined as much as 3%.
• Japan's services producer prices increased 3.7% in August. The Bank of Japan's July meeting minutes indicated one dissenting vote in favor of a rate hike, and a former BOJ official suggested an October increase is possible.
• China's industrial profits grew 4.2% in August, the weakest growth rate this year, and the Shanghai Composite fell 1.8%. China and the United States agreed to establish a Trade Council and extend their truce through January 2027.
• Major currency pairs were range-bound, with the New Zealand dollar being the best performer.

On Monday, oil prices increased at the market open after US President Donald Trump rejected Iran's seven-day proposal to reopen the Strait of Hormuz, although he indicated he expects negotiations to resume this week. The Iranian government has insisted that only diplomatic channels can bring the standoff to an end. Iran's Fars News agency reported that a cruise missile was fired at a vessel in the Strait, raising tensions going into the session. Separately, reports indicated that Yemen's Houthi forces targeted Riyadh and that flight landings were disrupted at King Khalid International Airport after explosions were heard in Saudi Arabia.

Iranian Foreign Minister Araghchi responded to Trump's UN speech, where the US president threatened to annihilate Iran. He affirmed that Iran is completely prepared for the war to restart and will resist any new aggression, while also remaining open to diplomacy. He added that Iran has refined its tactics after two prior wars and that the Revolutionary Guards would launch immediate counterattacks if the US strikes.

Regarding fuel, Trump told a Fox News reporter on Sunday that he is considering very seriously a ban on US diesel exports to address high prices, while recognizing it could raise gasoline prices. Other members of his administration are pursuing different approaches. Several lawmakers from farm states have called for export limits during the fall harvest, as disruptions in the Strait of Hormuz and Ukrainian strikes on Russian refineries pressure global fuel markets. Last month, US diesel exports reached a weekly record of nearly 2 million barrels per day. In a September 26 report, Goldman Sachs analysts said a ban would initially cut US diesel prices by about 4% and lift European wholesale prices by about 2%. They considered a ban plausible but not their base-case scenario.

Gold declined more than 6%, breaking a well-established hourly support zone near $4,250 and reaching a low below $4,200. This extends a downward trend from mid-September peaks above $4,430. Traders linked the drop to rising yields and increasing bets on Federal Reserve rate hikes, and it occurred alongside a broad decline in metals, led by silver. Bloomberg reported that Treasury Secretary Scott Bessent wants Fed policymakers to maintain an open mind on interest rates, arguing that advances in AI and deregulation will keep inflation in check even as Iran-related fuel costs affect voters ahead of the midterm elections.

In Japan, services producer prices rose 3.7% year-on-year in August, with the high-labour-cost component at 2.8%. Some analysts interpreted this as evidence of sustained underlying inflation that supports further rate increases by the Bank of Japan. The BOJ's July 30-31 meeting minutes showed the board kept its policy rate near 1.0% by an 8-1 vote, with Takata Hajime dissenting in favor of raising it to around 1.25% due to upside risks to prices. Former BOJ official Momma said the central bank could hike rates again in October. Swiss National Bank President Martin Schlegel told broadcaster SRF that the SNB is in a comfortable position, with inflation tracking the middle of its 0-2% target range, even as the Fed and ECB continue tightening.

The Nikkei 225 ended flat after oscillating between gains and losses, with early advances erased by higher yields and the services PPI data. Reuters quoted a portfolio manager as saying that weakness in Nasdaq futures also weighed on the market, and that he expects the US semiconductor index to remain within a wide range in the coming months, with technology and bank shares providing the main support for Japanese stocks. The KOSPI dropped 2.3% upon returning from a four-day closure, with heavy selling in major technology names. In China, the Hang Seng rose 0.5% while the Shanghai Composite fell 1.8% at the start of a holiday-shortened week, after industrial profits increased 4.2% in August, the weakest pace this year. Profits for January to August rose 15.7%, slowing from 17.6% in January to July. PBoC liquidity measures and US-China trade developments failed to boost risk appetite. China's Commerce Ministry said the two sides agreed to establish a Trade Council, extend their trade truce to January 2027, and first discuss a reciprocal tariff-reduction framework.

Other news included a report from The Information that China may allow Alibaba and ByteDance to purchase Nvidia's RTX Pro 5500 chip, with Beijing reportedly favoring approval. Reuters could not confirm the report, and Nvidia cited export restrictions on both sides as the obstacle. Anthropic CEO Dario Amodei was scheduled to attend a private White House dinner with Trump, potentially signaling a thaw after months of tension over Pentagon contract limits and a court loss regarding the blacklist, as Congress considers AI regulations. In foreign exchange, major currency pairs traded within ranges, with the New Zealand dollar the best performer. US equity futures were lower, with Nasdaq futures leading the decline as oil prices and yields rose.