ASX set to slump as Wall Street falls on higher oil prices, yields

Stocks fell and oil prices continued to climb following another round of US military strikes on Iran, stoking worries about stubbornly high inflation.

The S&P 500 index fell 0.7 per cent. The Dow Jones fell 456 points, or 0.9 per cent, in mid-afternoon trade. The Nasdaq composite fell 1 per cent.

The Australian sharemarket is set to slump, with futures at 4.53am AEST pointing to a fall of 88 points, or 1 per cent at the open. The ASX lost 0.1 per cent on Tuesday. The Australian dollar is weaker at US71.47¢.

The weak start to September follows a shaky but mostly positive month for Wall Street. Every major index notched monthly gains in August. The same worries continue to hang over Wall Street, though, including anxiety over rising prices, government debt, and the impact of global conflicts on the US and the global economy.

Technology stocks were among the heaviest weights on the market. Microsoft fell 1.3 per cent and Advanced Micro Devices fell 3 per cent. Their big market values tend to give them more influence over the broader market’s direction and their growth amid the artificial-intelligence boom has been heavily reliant on borrowing, which becomes more expensive as interest rates rise.

Much of the continued pressure being felt by Wall Street is coming from an ongoing sell-off in US government bonds. The yield on the 10-year Treasury, which tends to impact mortgage rates, rose to 4.79 per cent from 4.75 per cent late Monday. It was as low as 4.20 per cent at the beginning of 2026

The yield on the 2-year Treasury, which closely tracks expectations for Federal Reserve moves on interest rates, rose to 4.38 per cent from 4.34 per cent late Monday. That’s up significantly from about 3.50 per cent at the beginning of 2026.

Bond yields have an inverse relationship to prices, and yields rise as prices fall. Rising yields signal that investors are demanding a higher return from Treasurys because they are becoming riskier. Growing government debt is highlighting that risk.

The US debt surpassed $US40 trillion ($56 trillion) two weeks ago, a shocking milestone as defence costs and interest on the burgeoning deficit make up an enormous share of federal spending. The bond sell-off is global, with other nations facing the same economic pressures.

Higher yields on bonds signal higher borrowing costs on mortgages and a wide range of other loans. Higher borrowing costs tend to weigh down investments, including stocks, while making it more difficult for businesses to expand.

Oil prices have been behind much of the pressure on inflation, bond yields and the broader stock market. The price of Brent crude, the international standard, rose 3.9 per cent to $US94. Energy costs remain high and volatile amid the ongoing US war with Iran, which has essentially shut down the Strait of Hormuz, through which 20 per cent of the world’s oil is typically shipped.

Higher oil prices have pushed up costs for everything from gasoline to shipped goods, fuelling inflation that has been squeezing households and businesses. Higher inflation has also been a problem for the Fed, which is aiming to bring inflation down to a 2 per cent rate.

The rate of inflation is well above 3 per cent, and Wall Street expects the Fed to raise interest rates before the year is over in order to ease the rate of price increases. Investors are betting on a 66 per cent chance that the central bank will raise its interest rate at its upcoming September meeting, according to CME FedWatch.

The Fed will get more updates on inflation ahead of the meeting. Meanwhile, it is getting updates on the jobs market this week. On Tuesday, the government reported that US job openings rose slightly in July. A broader monthly report for August will be released on Friday.

Markets in Europe fell and markets in Asia were mixed.

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