Thursday, September 3

Iran launched missiles and drones at Jordan, the UAE and Kuwait after U.S. airstrikes hit Iranian military assets; Kuwait said its defenses intercepted the attacks. The risk of escalation rose further as Israel’s defense minister suggested an incoming Iranian strike would remove restrictions on Israel’s response, while the Pentagon extended Middle East troop deployments and indicated the conflict could run into 2027. President Trump said the U.S. campaign would not continue too long but warned Washington could strike again.

Crude nonetheless moved only moderately higher: Brent ended near $96.35 and WTI around $91.77, despite renewed attacks on regional targets. That restrained reaction implies traders are pricing alternative supply capacity and demand adjustment against the possibility of a wider disruption. Gold, by contrast, rallied toward $4,400-$4,500 as the weaker dollar and geopolitical risk reinforced haven demand, leaving energy and precious metals sending different signals about immediate market stress.

The yen posted its sharpest two-day advance in months, with USD/JPY falling roughly 1.4%-1.9% toward 156.5-158.0. Reports that the Bank of Japan is likely to raise rates in September, combined with official warnings over currency volatility and renewed intervention speculation, pulled down yen crosses and modestly relieved pressure on U.S. Treasuries. The 10-year yield slipped about five basis points to 4.78%-4.79%, but remained close to recent multi-year highs; the two-year yield reached a year-to-date high near 4.41%, with roughly 17 basis points of tightening priced for the September FOMC meeting.

The hawkish impulse was not confined to Japan. The Bank of Canada held its overnight rate at 2.25% while warning that further hikes might be needed if inflation broadens beyond energy. Economists surveyed by Reuters expected a 25-basis-point ECB hike next week, while stronger Australian GDP revived calls for an RBA increase. Resilient U.S. services activity and steady jobless claims leave little room for a rapid global easing narrative.

U.S. stocks recovered from prior losses, with the Dow up about 0.6%, the S&P 500 0.5% higher and the Nasdaq adding roughly 0.5%; early Thursday gains extended the move. The VIX fell about 7% toward 15, a notable decline in perceived near-term risk even as oil approached $100 and long yields remained elevated. Nvidia rose about 1% after announcing a planned $13 billion acquisition of AI platform Hugging Face, strengthening its reach into open-source model deployment and developer tooling. The deal is likely to attract regulatory scrutiny given Nvidia’s expanding AI position.

The rally was not uniform: Broadcom slipped after its revenue and margin outlook missed estimates, tempering enthusiasm across parts of the chip sector. Small caps outperformed on the prior close, while AI-linked names provided the Nasdaq’s support. The combination of lower volatility and firm equities suggests investors are treating the geopolitical shock as manageable for now, but the divergence within semiconductors underscores the market’s dependence on a narrow AI earnings narrative.