CNBC Daily Open: Watching Iran's economy; a losing game for bonds

Hello, this is Anniek Bao writing to you from Singapore. Welcome to another edition of CNBC's Daily Open.

U.S. Treasury Secretary Scott Bessent is fighting financial battles on two fronts.

Bessent told CNBC Thursday stateside that the U.S. likely won't need to restart large-scale combat with Iran, hours after President Trump declared "economic D-day" on Tehran.

Long one of Trump's most trusted economic hands, Bessent then turned to a fight closer to home, touting a Treasury buyback that could top $4 billion and arguing the U.S. deficit has "a very good chance" of having peaked — only for bond yields to shrug him off entirely, wiping out his own intervention and sending the S&P 500 down 0.9%.

Over in Japan, headline prices just hit their highest this year as energy costs bite.

Plenty for investors to chew on as they weigh whether Washington's word still moves markets the way it used to.

Bessent's bet is that "maximum economic pressure" can finish what six months of war hasn't — a one-two punch of sanctions and the existing U.S. naval blockade in the Gulf of Oman, rather than fresh strikes.

The push followed Trump's Truth Social post the day before, vowing "economic warfare" against Tehran, and to hit any country giving Iran "any type of lifeline" with Bessent called "the greatest coordinated economic isolation in the history of the world." He'll spell out the details at a news conference Monday.

Trump claims Iran's economy is already collapsing and the regime is "hanging by a thread." The war-torn country's GDP is likely to have contracted further during the war, and inflation has ballooned to historic highs.

But a former adviser to Iran's central bank is pushing back, arguing that Tehran's economy isn't as close to collapse as Washington claims, but the neighboring state United Arab Emirates' decision to sever trade ties could still deal it a serious blow.

In the interview with CNBC, Bessent said an accelerated buyback of government debt could exceed the announced $4 billion, and pledged to "make a market" to halt a sell-off in long-term debt.

There's a "very good chance" that the U.S. budget deficit under the Trump administration has peaked, he said. The monthly U.S. budget deficit topped $432 billion in July, its highest level in more than half of a decade.

But the bond market wasn't buying it: yields rebounded and erased the decline Bessent's intervention had triggered, pulling the S&P 500 lower.

Futures were little changed early Thursday, a sign traders are still deciding whether the sell-off was a one-day scare or the start of a real showdown between the Treasury and the bond market.

A cancer vaccine from Moderna and Merck showed promise in a first-ever late-stage trial, sending both stocks sharply higher.

Bitcoin also had a strong run, surging 12% over two days as Washington and crypto industry executives made a last-ditch push to get the Clarity Act — the industry's long-sought crypto market-structure bill — over the line.

Japan's historic yen intervention has 'turbo-charged' the carry trade

Japan's historic effort to prop up the yen may have had an unintended consequence: giving some investors a better opportunity to double down on the carry trade.

Japanese investors net bought more than 5 trillion yen of foreign equities and long-term bonds over the two weeks ended Aug. 15, compared with net selling of over 300 billion yen in the prior two weeks, according to Ministry of Finance data.

The purchases suggest investors took advantage of the yen's sharp rally following last month's joint U.S.-Japan currency intervention to snap up overseas assets at more favorable exchange rates, said market watchers.

— Lee Ying Shan