Global financial markets experienced significant fluctuations on Monday, driven by renewed tensions in the Middle East and political uncertainty in the UK. Brent crude oil prices surged following an attack on a nuclear facility in the United Arab Emirates, coupled with stalled peace negotiations between the United States and Iran. Former U.S. President Donald Trump heightened the stakes, warning on social media that Iran must act swiftly or face severe consequences. These developments pushed Brent crude prices up by 1.77% to $111.16 per barrel, the highest in nearly two weeks, before settling at $110 as Iran reported ongoing discussions through a Pakistani mediator.
The bond market also experienced notable volatility. The 10-year U.S. Treasury yield peaked at 4.631%, the highest since February 2025, before easing to 4.599%. In the UK, the 10-year gilt yield reached 5.19%, surpassing an 18-year high from the previous Friday, before settling back to 5.15%. This turbulence is attributed to political instability, with speculation of a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham adding to the uncertainty. As UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to address the economic impacts of the Middle East conflict, fears of increased public spending under a potential shift to the left further unsettled investors.
Mohit Kumar, chief economist at Jefferies, expressed concerns about the UK’s fiscal situation, noting that the government struggles to implement spending cuts and further tax increases may not yield additional revenue. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets perceive Burnham as moderating his high-spending tendencies, with a key test being whether the 10-year yield can dip below 5%.
Meanwhile, Japan’s bond yields rose, with the 10-year yield reaching nearly 2.8% on Monday, a 30-year high, as the government prepared to issue new debt to mitigate the economic impact of the Middle East conflict. European stock markets opened lower, with the Stoxx Europe 600 declining by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei dropped by approximately 1%, Hong Kong’s Hang Seng index fell by 1%, and Shanghai’s SSE Composite slipped by 0.1%, although South Korea’s Kospi managed a 0.3% gain.