Middle East escalation dominated overnight price action, with Iranian-backed Houthi strikes on Saudi targets and Iranian tanker interdictions in the Strait of Hormuz driving Brent crude back above $100/bbl — a level that historically reignites second-round inflation fears across energy-import-dependent economies. US Treasury yields remain elevated with the 10-year at 5.27% (down 4bp on the session but near multi-year highs), while the Fed's September minutes revealed internal divisions on the rationale for further rate hikes, adding uncertainty to an already fraught global rates picture. German Bund yields moved in the opposite direction, with the DE 10-year rising 11bp to 3.18%, a stark divergence from the US move that signals distinct European risk pressures — most likely energy-driven inflation repricing and widening sovereign spread anxiety rather than any reassessment of ECB terminal rate expectations.

For European investors, the cross-asset picture is concentrated in three fault lines: energy costs, sovereign spreads, and currency dynamics. The EUR/USD at 1.1254 (+0.33%) and GBP/USD at 1.3267 (+0.36%) reflect modest dollar softening on the day despite DXY at 102.24, suggesting EUR and GBP resilience is relative rather than fundamental — the EUR remains near recent lows on rate divergence and French fiscal concerns, with OAT-Bund spreads cited as a key drag. The Euro Stoxx 50 closed down 1.47% and the MIB led European index losses at -2.51%, with Italian equities disproportionately exposed to energy cost and sovereign spread pressures. Sector rotation into Insurance (+1.35%), Banks (+1.21%) and Financial Services (+1.10%) indicates some defensive repositioning into higher-yielding rate beneficiaries, while Basic Resources (-0.30%) was the sole sectoral decliner — consistent with softening aluminium (-0.73%), silver (-2.07%) and platinum (-3.52%) prices.