On Monday, global markets experienced notable fluctuations as renewed tensions in the Middle East fueled concerns over inflation and potential interest rate hikes by central banks. Brent crude oil, serving as the international oil price benchmark, saw an increase following an attack on a nuclear power plant in the United Arab Emirates. This incident coincided with stalled peace talks between the United States and Iran, now in their sixth week of a ceasefire. Former U.S. President Donald Trump took to social media, issuing a stern warning to Iran, stating, “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!” In response, Brent crude climbed by as much as 1.77% to reach its highest level in nearly two weeks at $111.16 a barrel, before slightly retreating to $110 after Iran indicated it had responded to a new U.S. proposal aimed at resolving the conflict.
The uncertainty in the Middle East also impacted global bond markets, with the U.S. 10-year Treasury yield reaching a peak of 4.631%, the highest since February 2025, before settling back to 4.599%. In the UK, the 10-year gilt yield rose to 5.19%, surpassing an 18-year high achieved last Friday, before easing to 5.15%. Political instability added to the volatility in the UK as traders speculated about a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later in the year. Meanwhile, the UK Chancellor, Rachel Reeves, joined other G7 finance ministers in Paris to deliberate on the economic ramifications of the Middle Eastern conflict.
Mohit Kumar, chief economist at the brokerage firm Jefferies, expressed concerns among bond investors regarding a possible political shift in the UK. He noted, “UK fiscal picture has already been in a poor shape as the government was unable to deliver on spending cuts. A shift to the left would imply a further increase in public spending, even though the government does not have the fiscal room to do so. Tax rises have already reached a stage where further rises in taxes are likely to be prove unproductive and unlikely to generate additional revenue.”
In Japan, bond yields also surged, with the 10-year yield reaching nearly a 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. Meanwhile, stock markets in Europe opened lower, with the Stoxx Europe 600, which tracks the continent’s largest listed companies, dropping by 0.7%. The UK’s FTSE 100 index remained relatively stable.
In the Asian markets, Japan’s Nikkei index fell by approximately 1%, while Hong Kong’s Hang Seng and Shanghai’s SSE Composite indices both experienced declines of 1% and 0.1%, respectively. Conversely, South Korea’s Kospi index closed slightly higher, up by 0.3%.