The dominant macro driver heading into Tuesday is the escalating US-Iran confrontation in the Strait of Hormuz: US forces struck three Iranian oil tankers and Iran's IRGC responded with ballistic missiles against two US Navy ships, with Tehran announcing a restricted maritime zone outside the Strait. Brent crude has pushed toward $97/bbl — up roughly 10% over the prior week — while WTI sits near $92/bbl, driving diesel prices to record highs in both the US and Europe and reigniting inflation expectations that had shown tentative signs of easing. The geopolitical premium now embedded in oil is feeding directly into central bank calculus, with Fed funds futures pricing approximately 58–60% odds of a Fed hike on 16 September and the ECB widely expected to raise its deposit rate to 2.5% on Thursday 10 September, with markets beginning to price further moves toward 2.75% or beyond by year-end.

For European markets, the cross-asset pressure is concentrated in sectors most exposed to energy cost pass-through and rate sensitivity. The EUR/USD slipped 0.12% to 1.1614 and GBP/USD fell 0.11% to 1.3517, reflecting a modest dollar bid as oil-driven inflation reinforced tightening expectations on both sides of the Atlantic rather than signalling any fundamental shift in dollar appetite. The SMI was the weakest major European index, falling 0.81%, consistent with its defensive, rate-sensitive composition. European Oil & Gas sector ETF (EXH2.DE) fell 0.42% even as crude rose — energy majors ENI and TotalEnergies dropped 3.29% and 2.46% respectively, suggesting the market is pricing margin compression and demand-destruction risk over windfall gains. Rate-sensitive Real Estate (EXSC.DE, -0.25%) and Construction (EXV4.DE, -1.15%) lagged, while Financials and Insurance led, consistent with a higher-for-longer rate environment.