Fresh Iranian Attacks on Shipping Setting Wednesday’s Financial Market Tone
October 7, 2026
The Brent price of oil is back above $100 per barrel and 1.1% above yesterday’s close, while West Texas Intermediate has been lifted back to the $90 threshold.
Long-term interest rates in turn have taken their cue from renewed attacks on ships trying to traverse the Strait of Hormuz. Ten-year sovereign debt yields have leaped 16 basis points in France where street riots persist, 14 bps in Italy, 10 bps in the U.K. and 9 basis points in Spain. The U.S. 30-year Treasury yield has climbed six basis points so far today to 5.73%, which compares to lows of 4.53% almost a year ago on October 22, 2025 and a pandemic trough of 1.26%. The 30-year U.S. mortgage rate jumped 19 basis points last week to 7.49%, which represents a gain of 140 bps since the second half of February, half of which happened in just the last five weeks. U.S. mortgage applications in those five weeks have imploded a combined 17.2% to a level not seen since January of 2025.
All this is good news for the dollar, whose weighted DXY index climbed 0.6% overnight to its strongest value since March 2025. In overnight action, the U.S. currency climbed 0.8% relative to the euro, 0.7% versus the Swiss franc, 0.7% against the Mexican peso, 0.6% versus the kiwi and sterling, 0.5% vis-a-vis the Canadian and Australian dollars, and even 0.4% against the Indian rupee despite a 25-basis point increase announced today in the Reserve Bank of India’s repo rate. Appreciation against the yen was limited to 0.1% amid the ever-present possibility of intervention support under Japan’s currency.
World equity markets, on the other hand, are taking a hit. In the U.S., the Russell 2000 is currently down 1.0%, followed by losses of 0.9% in the DOW, 0.8% in the Nasdaq and 0.6% in the S&P 500. Even greater damage has seen share prices in Europe sink so far by 1.4% in Germany, 1.9% in Spain, and 2.7% in Italy. Stock markets today lost 2.0% in South Korea, 1.6% in Singapore and 0.9% in Japan. Today is the last day of China’s week-long holiday closure.
The price of Bitcoin, which touched an alltime high of $126,198 a year ago yesterday, fell 2.7% today below yesterday’s close but remains 44% above its mid-2026 low. Gold and oil prices have slumped today by 1.7% and 2.9% thus far.
Attention has turned to central bank policy ahead of today’s publication of FOMC minutes due at 14:00 EDT. In the meantime, interest rate decisions were announced today by the Reserve Bank of India and Central Bank of Iceland.
A 25-basis point Indian repo rate hike to 5.50% had been expected and reverses a similarly-sized cut last December. This move and a concurrent change in the RBI’s monetary stance from “neutral” to “calibrated tightening” had the support of all six Board members. At 5.5%, the Reserve Bank of India’s new repo rate level is a percentage point below the 6.5% ceiling maintained from February 2023 until an initial cut in February 2025. Consumer price inflation of 4.8% is at a 20-month high and above the mid-point of the 2-6% target range, and its is far above the 0.25% low touched in October 2025. A released statement explains,
Lingering trade uncertainty, rising bond yields in advanced economies and an appreciating dollar are keeping global financial market sentiments nervous and fragile. Further tightening of global financial conditions, uncertainty about fair valuation of AI stocks, and an elusive resolution of the West Asia conflict pose significant downside risks to the global economic outlook. [India’s] economy is expected to remain resilient. It is clear that inflation and its outlook are not benign as they were last year.
The Central Bank of Iceland‘s 7-day deposit rate had previously undergone a trio of 25-basis point increase between March and August of this year to the current 8.0% level, which is the highest since February 2025 and below the 9.25% peak maintained from August 2023 until October 2024. Officials did not believe another increase now to be necessary and have a baseline forecast that embodies a pretty rapid drop of inflation next year, “although there is considerable uncertainty, especially as regards developments in the global economy and the domestic labor market.”
Released Japanese economic data today highlight
- A $29.1 billion further decline in Japanese international reserves last month to $1.178 trillion.
- An eighth consecutive increase in inflation-adjusted average cash earnings (this time by 1.5% in August), which ought to give officials confidence that another interest rate hike is not only manageable but appropriate.
- A 131-month high in the index of leading economic indicators, associated with an improving trend in the coincident index for a fourth straight time.
Following a no change in June and a 1.2% contraction in July, German industrial production rebounded by a sharper-than-anticipated 2.0% in August, its biggest advance in 17 months. That resulted in this year’s first positive year-on-year comparison (+2.3%), but for output over the three months through August was just 0.4% above that in March-May and unchanged on a year-on-year basis.
A 0.3% rise in Czech industrial production during August was less than anticipated and resulted in the smallest year-on-year rise (2.6%) since May. Filipino industrial production was 10.8% larger than in August 2025.
Consumer price data reported today include an acceleration of Estonian inflation to a 3-month high of 3.5% in September from August’s 65-month low of 1.5%; also a 3-month high in Hungarian CPI of 1.6%, still not far from July’s 116-month low of 1.2%; a 19-month high in Sweden’s CPI of 1.1% that conformed to expectations; and 31-month highs of 5.7% in Mauritius and 2.7% in Taiwan.
France experienced a seventh straight current account deficit in August, but its EUR 1.5 billion size was the smallest since April.
Chinese international reserves dropped by $38.1 billion last month to $3.4003 trillion.
The Lloyd’s British house price index (formerly known as the Halifax index) was unchanged in September both compared to August and September 2025.
Australia’s AIG-compiled construction sector purchasing managers index tumbled to an even more negative -34.5 in September from a reading in August of -4.7.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Central Bank of Iceland, German industrial production, Reserve Bank of India
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