Oil prices jumped more than 3%, with the international benchmark Brent trading above $107 a barrel early Monday morning in Europe, reflecting renewed concerns about a supply crisis that has pushed up costs worldwide.
This came after US President Donald Trump rejected an Iranian offer of a seven-day truce, reviving inflation concerns.
Tehran proposed a halt in hostilities at last week’s UN General Assembly that would see the Strait of Hormuz reopened, easing a supply crisis that has pushed up costs worldwide.
The strait is crucial to global energy supplies. Shipping risks have also grown in the Red Sea after the Houthis seized Yemen’s coastline, including territory near the Bab al-Mandab Strait.
“I reject their proposal,” the US president told reporters outside the White House. But he told Axios he expected negotiations to resume.
“They want to make a deal, but it is not the deal that I want to make,” he told the news platform. “It is what we would have maybe agreed to a year ago.”
“They overplayed their hand,” Trump added in the interview, published on Sunday. Axios, citing sources familiar with the matter, reported that indirect talks between Washington and Tehran could take place as early as Monday.
Iran has maintained its conditions for reopening the Strait of Hormuz, including the release of frozen assets, the lifting of sanctions on its oil and an end to the US naval blockade.
Oil prices fell more than 2% on Friday following news of the offer but rebounded at the start of the week. US benchmark WTI was trading up nearly 2% Monday morning, above $94 a barrel.
Equities and bonds reaction
Inflation fears weighed on stock markets with the European open showing red.
The Euro Stoxx 50 was about 0.5% lower in early trading while the broader pan-European Stoxx 600 traded 0.25% higher.
The UK’s FTSE 100, France’s CAC 40, Italy’s FTSE MIB, Germany’s DAX 30, Spain’s IBEX 35 and the Netherlands’ AEX all traded between 0.1% and 0.5% lower than their Friday close.
Spain’s IBEX 35 was 0.45% lower, leading the move to the downside.
Over in Asia, South Korea’s Kospi dipped 2.3% as it reopened after a long break.
Japan’s benchmark Nikkei 225 was little changed, inching down less than 0.1% as it neared the close.
Hong Kong’s Hang Seng rose 0.7%, while the Shanghai Composite lost 1.8%.
On Wall Street on Friday, the S&P 500 added 0.5% to break a three-day losing streak marked by big swings due to rising yields in the bond market. The Dow Jones Industrial Average added 478 points, or 0.9%, and the Nasdaq composite climbed 0.5%.
However, on Monday morning US futures were all in the red with CME’s S&P500 E-Mini Futures down 0.5% and the Nasdaq 100 E-Mini Futures roughly 1% lower.
Weighing on Wall Street last week were rising expectations of high inflation in the U.S. That’s potentially dangerous for the economy because it could encourage behaviour that leads to a vicious cycle that makes the cost of living spiral even higher.
The rise in prices puts the focus back on the Federal Reserve ahead of its next policy meeting at the end of October, with CME’s FedWatch tool putting the chances of a second successive interest rate hike at more than 65 percent.
The yield on the 10-year Treasury was briefly above 5.21% early Monday, near its highest level since 2007. High yields slow the economy by making it more expensive for everyone to borrow money, while undercutting prices for stocks and other investments.
The 10-year yield has been jumping since the start of the war with Iran, when it was at 3.97%. Japanese 10-year bond yields were trading at 3.095% at the same time.
In currency trading in Asia on Monday, the U.S. dollar rose to 157.69 Japanese yen from 157.19 yen. The euro cost $1.1388, little changed from $1.1393.
Gold prices also fell more than 2% as bullion traded at $4,220 an ounce.