Oil, not AI, is driving global markets as investors struggle with contrasting signals: hopes of mediation in the fast-spreading war in the Middle East against the backdrop of escalating U.S.-Iran attacks in the five-month-old conflict.
Brent futures eased away from a one-month high on Tuesday as investors latched on to hopes of a resolution soon, but the market has been here before plenty of times since the war erupted, and the risk remains of another disappointment.
A view of a village on the coast of Bab el-Mandeb, Yemen April 2, 2026. REUTERS/File Photo
Yemen's Iran-aligned Houthis said they would impose a navalblockadeon Saudi Arabia, a move that could lead to further oil supply shockwaves. But markets are focusing on news that Tehran had received a proposal from mediators for a 10-day ceasefire.
The drop in oil prices lifted sentiment, allowing traders to gorge on singed Asian chip stocks, taking South Korea's KOSPI up nearly 5% on the day. The index is still down 19% in July but up 62% in 2026 as worries around the AI trade linger ahead of the crucial earnings season.
Global stocks, led by chipmakers, have been hit by severe volatility in recent weeks as investors fret about high valuations, the pace of profit growth and whether the investment into AI infrastructure will yield tangible results.
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Burnham begins
European futures were 0.3% lower, indicating sentiment remains fragile as the recent escalation in hostilities has revived inflationary worries. Those worries have lifted yields and kept the U.S. dollar on a stronger footing.
Meanwhile, Britain's seventh prime minister in a decade, Andy Burnham, faces several challenges in his new role, from a sluggish economy to worries about fiscal discipline and the fallout from theIran war.
Burnham said on Monday he would stick to the previous government's fiscal rules, although he would use any flexibility within them. That was enough for a sharp drop in sterling and British government bonds on Monday.
Key developments that could influence markets on Tuesday:
Economic events: UK wage data for May, July ZEW sentiment survey data for euro zone and Germany
Earnings: Julius Baer and Novartis
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