Europe markets close lower as oil jumps and Fed rate hike bets intensify

Headlines

Markets

• Brent crude oil +3% to $108.11
• WTI crude oil +3% to $103.13
• USD leads, NZD lags on the day
• European indices lower, S&P 500 futures down 0.6%
• US 10-year yields flat at 4.975%
• Gold down 1.2% to $4,293

The new week kicked off with a busy session as markets boosted expectations for a Federal Reserve rate hike ahead of Wednesday's key event.

Oil prices have surged again, with Brent crude topping $108 and WTI crude rising above $103. Ongoing disruption in the Strait of Hormuz and the closure of a crucial Saudi oil pipeline are dominating the news. This is heightening inflation worries across markets, supporting bond yields and signalling to traders that the Fed will probably need to increase rates this week.

Odds of a Fed rate hike have now climbed to nearly 90%, with 10-year Treasury yields holding near 5% for now.

As expectations for a more hawkish Fed grow, the dollar has risen to a two-week high. USD/JPY gained 0.6% to 154.55, while EUR/USD fell 0.4% to 1.1545 on the day.

Equities are taking a hit at the same time, with major European indices all in negative territory. The DAX dropped 0.4% and the CAC 40 fell 0.6%.

US futures are also declining, hit by a dual blow as AI concerns further dampen sentiment. S&P 500 futures are down 0.6%, but Nasdaq futures are suffering more sharply, sliding 1.5% on the day. This comes after some leading AI names raised questions about whether development of the most advanced models might need to pause for safety reasons.

Elsewhere, gold fell 1.2% to $4,293, threatening a potential downside technical breakout, while Bitcoin bucked the trend, trading up 0.5% to $77,759.

All remains in play with the Fed decision set to be the major risk event for markets later this week.