Oil surges after US-Iran strikes, Asia markets mixed

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Sunday saw US forces strike Iran's Larak Island for the first time in over a month, after troops there were spotted preparing rockets armed with sea mines aimed at the Strait of Hormuz. In response, Iran launched ballistic and anti-ship missiles from several provinces, hitting two US bases in Jordan — King Hussein and Al Azraq. A US source indicated that most of the incoming missiles were intercepted, causing no major damage so far.

Trump claimed on social media that Kharg Island, which processes roughly 90% of Iran's oil exports, had been "blown to smithereens," though the video he shared was fabricated with AI. Neither the White House nor the Defense Department responded to inquiries about it. A real attack on Kharg would be a major escalation given its central role in Iran's oil shipments.

Separately, Treasury Secretary Scott Bessent told Reuters that new secondary sanctions on Iran are expected weekly, starting with banks. This follows penalties imposed Friday on Banque Misr's UAE branch for alleged financial ties to Iran, with Bessent hinting that a full exclusion from the dollar system could follow.

On currencies, Bessent said yen movements have been well contained and supports BOJ Governor Kazuo Ueda's policy approach, ahead of their meeting at the G20 in Asheville this week. The yen still strengthened during the session as Japanese yields continued rising. The 10-year JGB yield hit its highest since September 1996, and the 5-year yield reached a record near 2.21%, reflecting ongoing bond market pressure tied to BOJ rate-hike expectations. Japan's July industrial output and retail sales both beat forecasts, supporting further policy normalisation despite manufacturers predicting a September output drop.

Gold stayed under pressure following Friday's selloff driven by Fed Chair Kevin Warsh's hawkish Jackson Hole comments, with spot prices falling below $4,400/oz for the first time since August 19 amid a strong dollar and elevated yields. Barclays now forecasts the Fed will hike 25 basis points in both September and December, reversing its earlier no-change call.

China's official manufacturing PMI rose to 49.8 in August from 49.2, beating expectations but remaining in contraction for a second month, while the non-manufacturing gauge held at 49.0. The mixed data, along with heightened Iran tensions and firmer US rate expectations, pushed regional equities lower. Japan's Nikkei and South Korea's Kospi both declined, while Chinese stocks fell less sharply.

Australia's Melbourne Institute inflation gauge eased to a 0.5% monthly rise in August from 1.0% in July, but the annual rate accelerated to 4.8% from 4.0%. Coming just before the RBA's September 29 meeting and the central bank's own monthly inflation data, the faster yearly pace signals persistently high price pressures for policymakers, despite the softer monthly figure.