Morning Bid: Take a hike

• Brent crude spiked 6% to nearly $108/barrel on Thursday amid Iranian military strikes, Houthi advances threatening the Bab el-Mandeb Strait, and U.S. seizures of Iranian tankers, creating supply uncertainty and a sustained risk premium
• U.S. Treasury yields surged across the curve: the 10-year hit 4.9%, the 30-year reached a nearly two-decade high above 5.38%, and the 2-year climbed to 4.6%, its highest in 14 months
• Fed funds futures traders are pricing in over 65% probability of a quarter-point rate increase at next week's meeting, with today's August CPI report expected to be pivotal in determining the Fed's decision

Market Summary: Geopolitical Tensions Drive Oil Surge and Rate Hike Expectations

Key Developments:

Escalating U.S.-Iran tensions have pushed Brent crude oil above the critical $100/barrel threshold for the first time since July, surging 6% to nearly $108/barrel on Thursday before retreating Friday. The conflict has intensified with the U.S. seizing five Iranian oil tankers, Iran launching ballistic missile attacks on a Jordanian base, and Iran-aligned Houthis threatening the Bab el-Mandeb Strait—a vital oil export route.

Market Impact:

Rising energy prices have sparked inflation concerns, driving global borrowing costs sharply higher:

• U.S. 10-year Treasury yield approaching 5% (above 4.9% Thursday)
• 30-year yield reached nearly two-decade high above 5.38%
• 2-year yield hit 14-month high at almost 4.6%

Monetary Policy Implications:

Markets await today's critical U.S. August CPI data, with economists forecasting monthly headline inflation of 0.4% and core inflation of 0.2%. Fed funds futures price a 65%+ probability of a quarter-point rate hike at next week's Federal Reserve meeting—representing the highest policy uncertainty in years.

The European Central Bank already raised its policy rate to 2.50% from 2.25% Thursday to combat energy-driven inflation.

Additional Developments:

• Japanese yen strengthened to 152.89, a recent high, on expectations of Bank of Japan tightening
• U.S. imposed new tariffs on Canadian goods (alcoholic beverages, motorcycles, dairy) effective September 29
• Germany's AfD party gained ground in state elections, signaling rising populist movements across Europe
• Treasury Secretary Bessent's bond buyback plan disappointed investors with its limited scope

Outlook: Sustained geopolitical uncertainty and supply disruptions may maintain elevated oil risk premiums, keeping pressure on global bond markets and central banks.