European markets steady as oil climbs, bond yields rise

Headlines:

Markets:

• WTI crude oil up 3.7% to $86.50
• JPY leads, USD lags on the day
• Gold up 0.1% to $4,457
• European indices mixed; S&P 500 futures -0.2%
• US 10-year yields flat at 4.724%
• Germany 10-year yields up 2 bps to 3.31%, highest since 2011

Headline activity was limited during a quieter session, as markets continue to process Fed Chair Warsh's unexpectedly hawkish comments from last Friday.

Month-end positioning may be driving some caution, with relatively subdued market moves observed so far today.

Oil prices remain elevated following military strikes over the weekend between the US and Iran. Geopolitical tensions persist, signalling that neither side is close to a compromise. WTI crude gained 3.7% to $86.50, while Brent crude rose above $91 during the session.

On the data front, inflation figures from key German states came in hotter in August compared with July. That aligns with market expectations for a slightly stronger national reading later. It does not alter the broader picture for the ECB ahead of September, but does reinforce the current trajectory.

Among major currencies, the dollar edged slightly lower. EUR/USD rose 0.1% to 1.1600, with large option expiries playing a role. USD/JPY fell 0.2% to 159.67, and USD/CAD slipped 0.1% to 1.3885.

Gold saw little change, hovering near $4,457 after Friday's decline, while US Treasuries remained steady. US 10-year yields were flat at 4.724%, but European bond yields continued to climb. Germany's 10-year yield rose nearly 2 bps to 3.31%, its highest level since 2011, while France's 10-year yield reached 4.15%, a level not seen since 2008.

With European bond markets reacting in this manner, pressure on the ECB is likely to build as traders signal concerns over the rates and inflation outlook.