Those hoping the Iran war ends soon currently face disappointment.
It's Groundhog Day in the Gulf, with Washington and Tehran trading strikes and pledging more to come. Investors are no longer treating the loop as background noise, repricing oil, bonds and taking into consideration a hawkish Fed.
What you need to know today
The U.S. and Iran traded a fresh round of strikes Tuesday, with U.S. Central Command launching attacks on Iranian targets and Tehran claiming a retaliatory operation targeting American assets in the region.
Explosions lit up the sky above Aqaba, Jordan, after Iran said it was hitting back at the U.S. strikes — though it's unclear what caused the blasts or whether Iranian missiles or drones were actually behind them.
Oil prices climbed higher on the military escalation, with Brent crude futures jumping to $94.52 a barrel and U.S. WTI futures hitting levels not seen since July.
Amid renewed worries over the Middle East conflict, Fed Governor Michael Barr said he'd support a rate hike "if inflation appears not to be moderating sufficiently," echoing recent speech from Fed Chair Kevin Warsh. Markets are leaning toward a quarter-point hike this month, with the benchmark rate already at 3.50%-3.75%, according to the CME Group's FedWatch tool.
Wall Street wobbles
Wall Street is coming off a third straight negative session that left the S&P 500 index down 0.71% and the Nasdaq Composite declining more than 1%.
Oil's surge also revived rate-hike jitters, snapping the market's otherwise calm run through a fifth straight winning month.
Bonds sold off everywhere. Yields in the U.S. surged to a 20-month high, while borrowing costs in Japan and the U.K. pushed toward multi-decade highs, as the Hormuz shock reignited an inflation scare that had only just started to fade.
The U.S. 10-year Treasury yield climbed to 4.80% after hitting its highest levels since January 2025 earlier in the day. The short-term 2-year yield has risen to 4.40%, as markets reprice for a Fed that may need to hike rather than cut.
In an interview with CNBC on the sidelines of the G20 meeting, Treasury Secretary Scott Bessent said Washington wouldn't object if Tokyo intervened to support a weakening yen. "It's my belief that the Japanese government and that the BOJ will do the things that will lead to a stronger yen."
For Europe, consumer prices in the bloc rose to 3.3% in August, well above the European Central Bank's target, all but locking in a rate hike.
Putin sides with Iran
At a regional security meeting, Russian President Vladimir Putin voiced support for Iran, saying his country would try to help Tehran in its war with the U.S.
The Shanghai Cooperation Organization summit in Kyrgyzstan brought together leaders, including Putin, China's President Xi Jinping and India's Narendra Modi, for a two-day conference.
Without directly naming Washington, the bloc's leaders, in a joint statement, condemned the military strikes on Iran, which "resulted in numerous civilian casualties and significant damage to the country's economy."
Carney loses patience
As the U.S.-Canada trade standoff drags on, Canadian Prime Minister Mark Carney on Tuesday blasted the Trump administration for "doing memes ... throwing shade," urging Washington to "stop trying to be tough" if it wants serious trade talks.
He added that Ottawa remains open to "a mutually beneficial trade deal."
Carney's comments came in response to a reporter's question about Trump officials mocking Canada's military in social media posts and comments, and President Donald Trump signing an executive order directing the renaming of Lake Ontario to "Lake America" for federal government use.
Token deflation and Anthropic's memory problem
Artificial-intelligence token costs have fallen to fresh lows this week as open-source Chinese models like Moonshot's Kimi K3 offered lower prices than alternatives from leading frontier labs.
Meanwhile, Anthropic said it's overhauling how long it holds onto customer data after enterprise clients balked at a June policy requiring 30 days of traffic retention for safety monitoring.
The new "Enterprise Frontier Safeguards" let Anthropic run automated safety scans without human review of customer data, at no extra cost, rolling out through the fall.
And finally...
India rejects court order to uphold decades-old water-sharing treaty with Pakistan
The Indian government has categorically rejected an arbitration ruling which said the country must uphold a decades-old water-sharing treaty with Pakistan and limit construction on a hydroelectric project in the disputed Kashmir region.
The Permanent Court of Arbitration (PCA) in the Hague on Monday ruled in Pakistan's favor over the 1960 Indus Water Treaty, saying the historic pact remains fully binding and that India had no valid grounds for ending or suspending it.
India, which moved to put the agreement "in abeyance" last year, said its decision remains in force.
