Oil prices experienced an uptick on Monday amid escalating tensions in the Middle East, which heightened inflation concerns and speculation that central banks might raise interest rates. Brent crude, the global oil benchmark, saw a rise following an attack on a nuclear power plant in the United Arab Emirates. This incident coincided with stalled peace negotiations between the U.S. and Iran, now in their sixth week of a ceasefire. Former President Donald Trump took to social media, warning Iran that “the Clock is Ticking” and urging swift action, which contributed to the market’s reaction.
Brent crude reached $111.16 per barrel, marking its highest level in nearly two weeks, before settling slightly lower at $110 after Iran indicated a response to a new U.S. proposal aimed at resolving the conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, mentioned ongoing exchanges through a Pakistani mediator, though specifics were not disclosed. Meanwhile, global bond markets experienced volatility, with the 10-year U.S. Treasury yield climbing to its highest point since February 2025 before slightly retracting.
The UK bond market also saw fluctuations, with the 10-year gilt yield soaring to 5.19%, surpassing an 18-year high set on Friday, before easing to 5.15%. This instability is partly attributed to political uncertainty as traders speculate about a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham later this year. Finance ministers from the G7, including UK Chancellor Rachel Reeves, convened in Paris to discuss the economic repercussions of the Middle East conflict. Mohit Kumar, chief economist at Jefferies, highlighted concerns about a possible leftward shift in UK fiscal policy.
Kumar noted that the UK’s fiscal outlook was already strained, with the government struggling to implement spending cuts. A shift to the left could lead to increased public spending, despite limited fiscal space, and further tax hikes might not yield additional revenue. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets believe Burnham’s potential high-spending policies are under control. She emphasized the importance of the 10-year yield falling below 5% and the 30-year yield retreating from 1998-level highs.
In Japan, bond yields rose, with the 10-year yield reaching a nearly 30-year high of 2.8%, as the government prepared to issue new debt to mitigate the economic impact of Middle Eastern conflicts. European stock markets opened on a downward trend, with the Stoxx Europe 600 declining by 0.7% and the UK’s FTSE 100 remaining relatively stable. In Asia, Japan’s Nikkei fell by approximately 1%, Hong Kong’s Hang Seng index dropped 1%, while Shanghai’s SSE Composite slightly decreased by 0.1%, and South Korea’s Kospi ended 0.3% higher.