US stock index futures fell on Monday after President Donald Trump rejected an Iranian proposal to end the war, pushing crude oil prices sharply higher, bringing concerns about inflation back to the forefront and pushing US Treasury bond yields higher.
Last week, during the United Nations General Assembly in New York, Iran announced a peace proposal that it said was conveyed to the United States through Qatari mediators. While Trump said on Saturday that he rejected the proposal, Axios reported on Sunday that he expected American negotiators to continue talks this week, according to Reuters.
Crude oil prices jumped 3 percent to about $108 per barrel. Data from the London Stock Exchange Group (LSEG) showed that the 60-day moving correlation between oil prices and US stock futures rose to its highest levels since late May, indicating that energy and stock markets have become more affected by the same macroeconomic factors, including the potential repercussions of the continued struggle over the economy and inflation.
These concerns also affected the US Treasury bond market, as they pushed longer-term bond yields to record new highs not seen in decades.
Shares of precious metals mining companies listed in the United States were among the biggest losers during early trading, with the impact of rising yields on the prices of non-returning assets. “Gold Fields” shares fell 16 percent during pre-market trading, while “Harmony Gold” and “Endeavor Silver” shares fell by 5 and 6 percent, respectively.
By 05:42 a.m. EST, Dow Jones futures fell 187 points, or 0.36 percent, while Standard & Poor's 500 futures fell 38 points, or 0.49 percent. Nasdaq 100 futures fell by 304 points, or 0.98 percent.
Investors received some relief on the trade front after the conclusion of the US-China summit last week, where the two countries agreed to reduce customs duties imposed on goods worth $60 billion imported from each other. They also agreed to extend the trade truce for two months, until next January 10.
Meanwhile, scrutiny of the access to a number of AI agents has increased, following several recent hacking incidents. Among them is an incident in which models affiliated with OpenAI were able to access publicly available information on US government websites, according to a report.
As the week progresses, attention will turn to a group of important economic data, at a time when markets are pricing in a 70 percent probability that the Federal Reserve will raise interest rates by at least 25 basis points, in two consecutive meetings, during next October, according to the “Feed Watch” tool, affiliated with the “CME” group.
The personal consumption expenditures index for last August and the non-farm payrolls report for September are scheduled to be released this week, and they are among the data that may help investors evaluate the path of the Federal Reserve’s monetary policy during the current year.
Policymakers Michelle Bowman, Lisa Cook and Thomas Parkin are scheduled to speak later on Monday, and may reaffirm the shift towards a tighter monetary policy stance that the central bank has adopted since its previous meeting.
In stock movements, Tesla shares fell 1 percent, after the brokerage company JP Morgan reduced the target price for the stock, indicating weak deliveries in the third quarter. Meta shares also fell 2.2 percent, after rising 13 percent last week.
Pressure returned to Japanese markets, Monday, with government bond yields rising toward their highest levels in decades, driven by accelerating service inflation and growing expectations of further interest rate hikes by the Bank of Japan, while the Nikkei index ended a five-session winning streak under pressure from technology and semiconductor stocks.
The ten-year government bond yield rose two basis points to 3.095 percent, approaching the highest close since August 1996, while the two-year bond yield, which is more sensitive to monetary policy expectations, rose 1.5 basis points to 1.950 percent, equaling the 31-year peak recorded last week.
The 30-year bond yield also rose a basis point to 4.165 percent, a sign that selling pressures are extending across the yield curve.
The moves came after Bank of Japan data showed that the producer services price index rose 3.7 percent on an annual basis in August, the fastest pace in more than two years, compared to 3.6 percent in July.
The data is important because it reflects the expansion of inflationary pressures into the services sector, at a time when the central bank is monitoring the ability of companies to pass on higher labor costs to prices.
Tightening expectations were also strengthened after the publication of the minutes of the Bank of Japan's meeting in July, which showed that members of the Monetary Policy Board saw the need to focus more on inflation risks, while some of them called for raising interest rates at a faster pace.
The bank raised the interest rate this month to 1.25 percent, the highest level in 31 years, amid pressures resulting from rising prices, a weak yen, and import costs.
Ataru Okumura, chief interest rate strategist at SMBC Nikko Securities, said that major advanced economies share factors that fuel inflation, such as financial expansion and rising commodity prices. Which may reinforce the belief that the Bank of Japan will eventually be forced to tighten monetary policy further.
Attention is now turning to the 40-year bond auctions, on Tuesday, and the two-year bond auctions, on Wednesday, in a new test of investors’ appetite as yields rise.
The Ministry of Finance is also scheduled to hold a regular meeting with the main dealers, amid anticipation of the possibility of discussing reducing the quantities offered in auctions to enhance liquidity for bonds with maturities ranging between five and 11 years.
Takuya Onizawa, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said that the focus is on whether the cuts will actually be implemented, their size, and the tools that will be used to compensate for them.
In the stock market, the Nikkei index fell by 0.73 percent to close at 65,877.62 points, ending a series of increases that lasted five sessions during which it achieved about 4.5 percent. The broader Topix index fell 0.40 percent to 4,112 points.
The Nikkei had risen earlier in the session by about one percent to 67,034.74 points, the highest level since mid-August, before the gains dissipated.
Maki Sawada, equity strategist at Nomura Securities, said that the level of 67,000 points has become seen as a major resistance level for the index.
Stocks were under pressure as Nasdaq futures declined during Asian trading before the American company Micron Technology announced its quarterly results on Wednesday. Takamasa Ikeda, senior portfolio manager at GCI Asset Management, said that the weakness of US contracts prompted investors to sell, in addition to rebalancing positions at the end of the first half of the Japanese fiscal year.
He added that the US semiconductor index has been moving within a wide range since June 20, suggesting that this pattern will continue during the next three or four months, and that the Nikkei will move in a similar manner.
Technology stocks were among the biggest losers; “Socionext” shares fell 5.15 percent, “Ebiden” 4.43 percent, and “Kioxia Holdings” 4.37 percent. The number of declining stocks within Nikkei reached 171 stocks, compared to 53 rising stocks and one stock remaining stable.
In contrast, some financial stocks benefited from the higher yield environment. Mizuho Financial Group shares rose 2.01 percent to record the highest close since June 2007, while Dai-ichi Life Holdings rose 1.91 percent. Ebara led the gains, rising 2.82 percent.
Chinese stocks fell strongly on Monday, and the leading stock index fell to its lowest level in a year with the decline of optimism that followed the summit of Chinese President Xi Jinping and US President Donald Trump, and investors returned to focusing on internal economic imbalances, geopolitical risks, and US restrictions on technology, while the yuan recorded a slight decline against the dollar. The CSI 300 index of leading stocks closed down 2.2 percent, the largest loss in five weeks, after touching the lowest level since August 2025. The Shanghai Composite Index also fell 1.7 percent. In contrast, Hong Kong shares rose 0.5 percent. The Hong Kong market will remain open during most of the Chinese “Golden Week” holiday, which begins on October 1, with the exception of the first of the month. The losses came despite the United States and China announcing their agreement to reduce customs duties on goods worth $30 billion in each direction, amounting to $60 billion in mutual trade, in addition to launching a dialogue on artificial intelligence after Xi and Trump’s meeting in Washington. But investors seemed less convinced that the results of the summit meant the end of the fundamental differences. OCBC Bank said that the United States and China, despite the positive image presented by the summit, still differ on technology, security, trade, and the broader structure of international governance. Technological concerns were renewed after US lawmakers presented a draft law to prevent the federal government from equipping sensitive government systems with Chinese components used to transfer data within artificial intelligence data centers. The move put strong pressure on Chinese optical communications equipment companies. “E-Optolink Technology” shares fell 8 percent in Shenzhen, while “Innolight Technology” shares lost 9 percent in Shenzhen and 12 percent in Hong Kong, after the names of the two companies were explicitly mentioned in the move by American lawmakers. The CSI 300 telecommunications services index fell by more than 6 percent to its lowest level in two months, while the “Star” market indexes for technology, “Chainext” and small companies fell by about 4 percent each. Chip companies were also under pressure after reports that China might allow some local companies, including ByteDance and Alibaba, to purchase chips from Nvidia designed for advanced professional computing devices, which affected investors' appetite for some local alternatives. Caution has increased with the approach of a week-long holiday starting on October 1. Chiangkai Securities said that a state of risk aversion is spreading in the market before the long holiday. The pressures came at a time when new data showed Chinese industrial companies' profit growth slowed to 4.2 percent year-on-year in August, from 11.2 percent in July, re-highlighting weak domestic demand and the imbalance between the strength of production and consumption. In the currency market, the yuan fell slightly to about 6.7142 against the dollar, with attention shifting from the top to the fundamentals of the economy. The dollar index rose to 101.09 points, approaching the highest level in two months. However, Chinese institutions believe that strong exports can continue to support the currency during the fourth quarter. Huatai Futures said that trade and geopolitical factors temporarily receded into the background after the two leaders' meeting, and that the yuan is still on an upward path, but at a slower pace. COFCO Futures said that the tariff reduction agreement may help keep Chinese exports strong, providing support for the currency, but it warned of the widening of the revenue differential between China and the United States and the risk of changing external demand. High US Treasury bond yields constitute an additional obstacle to the rise of the yuan, as they increase the attractiveness of the dollar. The People's Bank of China had pledged to stabilize market expectations and beware of "herd behavior," and set the reference price for the yuan at 6.7399 to the dollar, the strongest level since February 2023. Monday's movements show that the Washington summit succeeded in alleviating some of the commercial risks, but it was not enough to change investors' moods in a sustainable manner. As the long holiday approaches, the weakness of the domestic economy, the technological confrontation with Washington, and the rise in US yields have returned to become the main drivers for stocks and the yuan.
