Oil prices surged on Monday, driven by escalating tensions in the Middle East that fueled fears of inflation and expectations that central banks might hike interest rates. Brent crude, the global oil benchmark, rose after an attack on a nuclear facility in the United Arab Emirates coincided with a stall in peace negotiations between the United States and Iran. Former President Donald Trump heightened the urgency of the situation with a social media post warning Iran that “time is of the essence” to act swiftly, or face dire consequences. This development saw Brent crude reaching a high of $111.16 a barrel, marking its peak in nearly two weeks before slightly retreating to $110 following Iran’s response to a new U.S. proposal to end the conflict.
The bond market experienced volatility as well, with the 10-year U.S. Treasury yield climbing to 4.631%—its highest point since February 2025—before settling at 4.599%. In the UK, political uncertainty added to the instability, as the 10-year gilt yield rose to 5.19%, surpassing an 18-year high set on Friday, later falling to 5.15%. Concerns were heightened by speculation that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham. Concurrently, UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to address the economic repercussions of the Middle Eastern conflict.
Market analysts expressed worries about the potential impact of a political shift in the UK. Mohit Kumar of Jefferies noted concerns over a “shift to the left,” which could imply increased public spending despite limited fiscal capacity. He pointed out that further tax hikes might be counterproductive, failing to generate additional revenue. Kathleen Brooks from XTB suggested that UK bond yields might recover if markets perceive Burnham as restrained from any high-spending tendencies. She highlighted the significance of the 10-year yield potentially dropping below 5% and the 30-year yield stepping away from levels not seen since 1998.
In Japan, bond yields also climbed, with the 10-year yield reaching a near 30-year high of 2.8% as the government prepared to issue new debt to mitigate economic fallout from the Middle East conflict. Meanwhile, stock markets in Europe opened on a lower note, with the Stoxx Europe 600 index declining by 0.7% and the UK’s FTSE 100 remaining largely flat. In Asia, Japan’s Nikkei index dropped by about 1%, Hong Kong’s Hang Seng fell 1%, while Shanghai’s SSE Composite slipped 0.1%. South Korea’s Kospi, however, saw a slight increase, closing 0.3% higher.