The escalation came just as Group of Seven leaders were gathering in Canada with U.S. President Donald Trump’s tariffs already straining ties.
Yet there was no sign of panic among investors with currency markets calm and Wall Street stock futures steadying after an early dip.
Oil did add 2% to last week’s 13% surge in an inflationary pulse that, if sustained, should make the Federal Reserve even less likely to cut interest rates when it meets on Wednesday.
Futures imply almost no chance of a reduction in the 4.25% to 4.5% rate band, and scant prospect of a move in July either. Markets will be particularly sensitive to any change in the Fed’s “dot plot” path for rates.
“The Committee will release a new set of economic forecasts, and we expect that the interest rate forecast ‘dots’, which last showed a median expectation of two cuts this year, will instead look for only one cut this year,” said Michael Feroli, head of U.S. economics at JPMorgan. Markets are still wagering on two easings by December, with a first move in September seen as most likely. Data on U.S. retail sales on Tuesday will also be a hurdle, as a pullback in autos could drag the headline down even as core sales edge higher. A market holiday in Thursday, means weekly jobless claims figures are out on Wednesday.
For now, investors were waiting on developments and MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%.
Japan’s Nikkei firmed 0.8% and South Korean stocks added 0.5%. S&P 500 futures rose 0.1% and Nasdaq futures gained 0.2%.
European markets were more pressured by the region’s reliance on oil imports and EUROSTOXX 50 futures slipped 0.1%, while DAX futures lost 0.2%. FTSE futures were flat.
Yields on 10-year Treasuries nudged up 1 basis point to 4.42%, showing little sign of safe haven demand.
In currency markets, the dollar firmed 0.3% on the Japanese yen to 144.49, while the euro dipped 0.1% to $1.1537 . The spike in oil prices is a negative for the yen and euro at the margin as both Japan and the EU are major importers of energy, while the United States is a net exporter.
Currencies from oil exporters Norway and Canada both benefited, with the Norwegian crown hitting its highest since early 2023.
Central banks in Norway and Sweden meet this week, with the latter thought likely to trim rates.
The Swiss National Bank meets on Thursday and is considered certain to cut by at least a quarter point to take rates to zero, with some chance it may go negative given the strength of the Swiss franc.
The Bank of Japan holds a policy meeting on Tuesday and is widely expected to hold rates at 0.5%, while leaving open the possibility of tightening later in the year.
There is also speculation it could consider slowing the rundown of its government bond holdings from next fiscal year.
In commodity markets, gold was getting the safe-haven bid from Mid-East tensions and rose 0.5% to $3,450 an ounce.
Oil prices were underpinned by fears the Israeli-Iran conflict could spread and disrupt exports from the region, particularly through the vital Strait of Hormuz.
Brent climbed $1.11 to $75.34 a barrel, while U.S. crude rose $1.05 to $74.03 per barrel.
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