Stocks Slip as Rising Oil, Inflation Risks and Geopolitical Tensions Rattle Markets
Global stocks edged lower on Monday as surging oil prices, escalating Middle East tensions and political uncertainty in Europe kept investors cautious ahead of crucial U.S. inflation data due later this week.
Tehran said it would announce a restricted zone outside the Strait of Hormuz in the coming days, after U.S. forces struck three Iranian tankers and Iran’s Islamic Revolutionary Guard Corps launched ballistic missiles at two U.S. Navy ships.
The escalating tensions sent Brent crude futures up 1.3% to $97.50 a barrel, their highest level in seven weeks. Oil prices jumped nearly 8% last week and are now about 35% above their late-February level, before the war began.
Diesel prices, critical to transport, shipping, farming and manufacturing, also hit record highs last week and are roughly 90% above pre-war levels.
With food and fuel costs rising, investors are increasingly concerned that central banks could keep raising interest rates. That makes this week’s U.S. consumer price data a key market focus.
The European Central Bank is widely expected to raise rates to 2.5% on Thursday, while markets are pricing in another increase to 2.75% by December.
Markets are also assigning a 75% probability that the Bank of Japan will raise rates by a quarter percentage point at its September 18 meeting, with a 60% chance of another increase by December.
“Central bank patience through the energy shock has been supportive of asset prices and the credit cycle. However, central banks are now on the move,” said Bruce Kasman, global head of economics at JPMorgan.
Rate Hike Risks
For the U.S. Federal Reserve, last week’s stronger-than-expected payrolls report, which showed an increase of 162,000 jobs in August, has pushed markets to price in a 58% chance of a rate hike at the Fed’s September 16 meeting and a 70% probability of another move in October.
The euro rose 0.14% to $1.1629, supported by expectations of an ECB rate hike. However, the currency has weakened since reaching three-month highs in August and could struggle to gain momentum as political tensions build across Europe.
In Germany, the far-right Alternative for Germany (AfD) party came first in state elections in Saxony-Anhalt on Sunday, bringing it closer to state-level power for the first time since World War Two. The party remains short of a majority and far from national power, but it has previously backed policies including abandoning the euro.
“This development is dangerous for the longer-term stability of the single currency,” said Kathleen Brooks, research director at XTB.
In France, recent polls suggest far-right leader Marine Le Pen could win the first round of next year’s presidential election. Le Pen has previously supported abandoning the euro.
“The next few years could see waves of political change in Europe and a shift to the right in the two largest economies,” Brooks said, adding that while this may not immediately concern foreign exchange traders, it could weigh on the euro over the longer term.
The euro is down 1.1% against the dollar so far in 2026, making it the weakest-performing major currency. The Japanese yen has gained 0.7%, while the pound is up 0.4%.
The dollar fell 1.2% against the yen to 154.32 after a surge in buying pushed the Japanese currency to a seven-month high. The yen recorded its strongest weekly performance in a month last week as expectations of a Bank of Japan rate hike, along with the possibility of further official intervention, triggered a short squeeze.
European stocks struggled to hold gains, while U.S. trading remained subdued because of a holiday. S&P 500 futures fell 0.2%, while Nasdaq futures rose 0.2%.
