A look at the day ahead in European and global markets
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By Ankur Banerjee, Asia Finance & Markets Breaking News Correspondent
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Markets are stuck in a loop of hope and despair as talks to end the war in the Middle East remain deadlocked, with the latest setback sending oil prices higher, fanning inflation worries and underpinning the dollar.
U.S. President Donald Trump said a ceasefire with Iran was "on life support" after Tehran rejected a U.S. proposal to end the conflict. That led to a slight risk-off mood with investors wagering both sides would be reluctant to escalate attacks.
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An Iranian man walks next to a mural on a street in Tehran, Iran, May 11, 2026. Majid Asgaripour/WANA (West Asia News Agency) via REUTERS
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While a ceasefire in place since April 7 has helped lift investor sentiment, the lack of progress in negotiations between Washington and Tehran is beginning to weigh on certain corners of the market.
Bond yields have been steadily rising across the globe as investors brace for interest rates to stay higher for longer to tackle inflationary pressure because of elevated energy prices.
In Europe, markets fully price two 25-basis point hikes across the ECB's three meetings to September and see around a 75% chance of a third by year-end, while traders have fully priced out any rate cuts this year from the Federal Reserve.
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Graphics are produced by Reuters
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That has left the U.S. dollar on the front foot on safe-haven demand, although the gains are constrained as investors still pin hopes on some sort of resolution in the coming days.
U.S. inflation data later in the day will take centre stage as investors parse the report to get a sense of the impact of the war on prices. The final inflation data for April in Germany is also due after an early report showed a rise in prices.
That data may sharpen focus on just how vulnerable energy-dependent Europe remains, especially with the pivotal Strait of Hormuz effectively shut down 10 weeks into the conflict.
Futures point to a lower open as the dour mood moves to Europe, with the pan-European STOXX 600 still trading about 4% below pre-war levels and lagging global peers that have rebounded on artificial intelligence-driven optimism.
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Key developments that could influence markets on Tuesday: |
- Germany: April inflation report, May ZEW sentiment survey
- U.S.: Inflation report
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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