European Markets Expected to Trade Softly as Strait of Hormuz Reopening Hopes Fade

European stocks are expected to open lower on Monday amid heightened caution, as hopes that the Strait of Hormuz will be reopened have faded following a rebuff by Iran to a U.S. proposal and the threat of further military action.

President Donald Trump rejected Iran’s latest offer and signaled possible new strikes after the midterm elections, though he said negotiations could resume this week. Iran has indicated it will not soften its conditions and Foreign Minister Abbas Araghchi warned that the country is prepared for war, stating, “We are fully prepared for the war to be resumed. We stand firm in the face of any new aggression, even if it comes to a doomsday war,” in an interview with NBC News.

Separately, Trump is still evaluating a diesel export ban that could initially lower U.S. diesel prices but might lift European wholesale costs by about 2 %. Meanwhile, rising U.S. Treasury yields—driven by Fed officials flagging additional tightening—continue to weigh on investor sentiment. Cleveland Fed President Beth Hammack warned that the biggest risk to inflation is the formation of an inflationary mindset, and markets are now pricing in another Federal Reserve rate hike before year‑end.

Asian markets were mixed. South Korea’s Kospi fell nearly 2 % after a holiday‑related pause, while China’s Shanghai Composite declined 1.9 % as August industrial profits grew at the weakest pace of the year (4.2 % YoY). China confirmed a two‑month extension of its trade truce with the United States, and Japan’s service‑sector inflation accelerated at its fastest annual rate in more than two years. Minutes from the Bank of Japan’s July meeting highlighted growing inflation risks, increasing speculation of a second consecutive rate increase in October.

In currency and commodity markets, the U.S. dollar index hovered near a two‑month high, gold slipped below $4,200 an ounce, and Brent crude rose about 3 % to above $107 a barrel amid renewed supply concerns.

U.S. equities closed higher on Friday, posting their first weekly gain in three as oil prices softened on reports of a potential Iran‑U.S. deal, easing pressure on Treasury yields. The 10‑year Treasury yield briefly topped 5.22 % after consumer sentiment fell to a four‑month low and year‑ahead inflation expectations rose to 4.6 %. The S&P 500 gained 0.5 %, the Dow advanced 0.9 % and the Nasdaq rose 0.5 %.

European bourses also ended higher on Friday, marking their first weekly gain in a month. The pan‑European STOXX 600 rose 0.4 %, the German DAX climbed 0.6 %, the U.K.’s FTSE 100 edged up 0.1 % and the French CAC 40 finished marginally lower.

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