Oil Near $100, ECB Hike Looms as Middle East Tensions Hit European Futures and Bond Yields

European stock futures fell and Asian markets struggled for direction Tuesday as a fresh wave of geopolitical risk in the Middle East pushed oil prices to multi-week highs and reinforced bets on tighter monetary policy from central banks on both sides of the Atlantic.

Brent crude futures traded around $97 a barrel in Asian hours after hitting a six-week high on Monday, according to Westpac analysts cited by a news report. Saudi Arabian oil infrastructure was reported hit over the weekend, and Iran threatened to retaliate against any new attacks by targeting energy infrastructure across the Persian Gulf, including U.S. oil and gas interests, one source said. Brent had earlier been above $99 after Saudi Arabia halted operations at facilities in the kingdom’s south following attacks, another source reported.

The escalation extended losses from Monday, when U.S. markets were closed for Labor Day. S&P 500 e-mini futures were down 0.1% in Asian trading Tuesday, while S&P futures had earlier slipped 0.2% in thin trading Monday, according to separate reports. Nasdaq futures were modestly lower after reversing an earlier gain. In Europe, the Stoxx 600 struggled for direction, with economically sensitive sectors leading declines as inflation concerns pushed bond yields higher.

**ECB and Fed tighten the screws**

The European Central Bank is expected to deliver a near-certain quarter-point hike on Thursday, taking its deposit rate to 2.50%, one source said. That, combined with a Federal Reserve that may move on Sept. 16, kept bond markets under pressure. Markets are pricing about a 60% chance of a 25-basis-point hike at the Fed’s next meeting, according to the CME Group’s FedWatch tool, a level that has held steady for a week. Fed officials are in a communications blackout until after the Sept. 15-16 meeting, and Friday’s U.S. CPI print is seen as the decisive data point for whether they raise or hold steady.

“Markets will be adjusting their positioning heading into the Fed’s blackout period. The risk is the Fed turning hawkish and that will be reflected in equities,” said Geoff Yu, a senior macro strategist at BNY, in a report. “Bond markets will remain nervy and we remain focused on fixed-income volatility.” Another strategist, Anastasia Amoroso at Partners Group, told Bloomberg TV that markets are likely in “some sort of period of digestion” as central bank policy adjusts globally.

In Europe, the yield on the U.S. 10-year Treasury rose 0.6 basis points to 4.788% in Asia Tuesday. The dollar index slipped to a two-week low around 98.82, while the yen strengthened to its highest level since February, surpassing the peak reached after July’s intervention. The dollar fell 0.2% against the yen.

**Asia mixed, Europe sags**

Japan’s Nikkei 225 edged up 0.2% after fluctuating, as the yen jumped as much as 0.6% to 153.51. Revised data showed Japan’s economy grew faster than initially estimated in the April-June quarter, driven by business spending, but still missed forecasts. Japanese real wages rose 2.4% in July from a year earlier, the biggest gain since May 2021. “With wage growth going from strength to strength, the case for the Bank of Japan to hasten the pace of tightening is becoming increasingly compelling,” Capital Economics analysts wrote.

South Korea’s KOSPI rose 1.2%, while Hong Kong’s Hang Seng lost 1% as Chinese tech stocks retreated. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%. Australian shares fell 0.6% after a measure of consumer sentiment dropped sharply in September.

The Investing.com summary headline said “European shares sag on Tehran’s Hormuz zone plan and imminent ECB hike,” capturing the dual drag on the region.

**Earnings and corporate moves**

Several corporate stories moved individual stocks. Novartis shares fell after its heart drug, pelacarsen, failed in a final-stage study, the third drug setback in a week for the Swiss drugmaker, one source said. Another source reported Novartis shares dropped as much as 3.9% in European trading, while a separate report noted the failure of the “potential blockbuster” treatment. The company’s shares were down 2.6% in Monday’s European session, according to one account.

Other notable movers included Nordex, which rose up to 12% after a BofA upgrade; SigmaRoc, which gained up to 13% on interim results and an acquisition; and Lottomatica, which rose as much as 8.2% after quantifying expected online earnings gains from a proposed acquisition. In the U.S., Amazon shares were down 0.9% in premarket trading after one of its cargo planes overran a runway at Miami International Airport and burst into flames on Sunday, killing at least five people. Jaguar Land Rover will cut about 4,000 jobs as it grapples with U.S. tariffs and a cyberattack, one source reported.

**Key data and events ahead**

The week builds toward Friday’s U.S. CPI report, with Thursday’s PPI and Oracle earnings adding to the mix. Zerohedge noted the Labor Department’s August NY Fed 1-year inflation expectations and July consumer credit data are due Tuesday. The Federal Reserve’s blackout period began Sept. 5 and runs through the FOMC meeting. Treasury auctions include a $58 billion sale of three-year notes.

JPMorgan strategists advised buying any dips in equities given a robust earnings outlook, saying even moderate central bank tightening would be unlikely to derail the positive backdrop unless inflation expectations change materially. “As corporate profits remain on an uptrend, any bout of weakness in equity prices would leave them cheaper,” the strategists wrote.

Gold rose 0.5% to $4,428.23, while bitcoin was flat at $79,333.01.