Key facts
- Record high diesel prices are a significant inflationary concern for the US.
- The upcoming US CPI report on Friday could pressure the Federal Reserve to hike rates if core inflation rises above 0.2%.
- Asian markets saw gains, particularly in tech and semiconductor stocks, while European and US futures were flat.
- Geopolitical tensions in the Gulf region persist with Iran announcing a restricted zone near the Strait of Hormuz.
- The European Central Bank is widely expected to raise interest rates to 2.50% this week.
Asian shares advanced, driven by semiconductor stocks, while European and Wall Street futures showed minimal movement. The Nikkei climbed approximately 2%, and South Korea's Kospi rose around 3% to 6,900, with Goldman Sachs maintaining a long-standing bullish call on the Kospi. This tech-led rally provided a distraction from geopolitical tensions in the Gulf, where Iran announced plans for a restricted zone near the Strait of Hormuz following US military actions.
Crude oil prices saw a modest increase, with Brent at $96.85 a barrel and US crude at $92.10. However, the rise in oil is concerning for diesel prices, which reached record highs last week, impacting transportation, shipping, farming, and manufacturing. This inflationary pressure heightens the significance of the upcoming US CPI report on Friday. Any core inflation increase above 0.2% could compel the Federal Reserve to raise interest rates, with futures indicating a 57% probability for a September hike.
President Donald Trump has previously threatened trade restrictions against countries with trade surpluses if the Fed does not lower rates. Meanwhile, Europe faces its own political challenges, with Germany's far-right AfD party securing first place in state elections in Saxony-Anhalt, though without a majority. The euro remained stable at $1.1608, but German bunds could face pressure if the AfD's political influence grows. The European Central Bank is widely expected to increase its key interest rate to 2.50% on Thursday, with markets anticipating further tightening to at least 2.75%.
The dollar was flat against the yen at 156.21, following a significant drop last week amid speculation about a more hawkish Bank of Japan policy. Key economic data expected to influence markets include EU Sentix investor confidence, German industrial output, and UK house prices.