A look at the day ahead in European and global markets from

Ankur Banerjee

Markets were nervous after the latest escalation in Middle East

tensions but investors hope the new U.S. attacks on Iran after

an Apache helicopter was downed near the Strait of Hormuz will

not derail an eventual peace deal to end the war.

That might just be wishful thinking though, with the U.S.

military saying it had targeted Iranian air defence, ground

control stations and surveillance radar sites near the key

waterway in response to attacks on U.S. forces and commercial

shipping.

The tit-for-tat attacks sent stocks lower while oil prices

surged though Brent futures remained well below the $100 per

barrel level, leading market analysts to suggest the episode

could soon blow over.

Still, the ceasefire struck in April is hanging by a thread

and progress on a resolution to end the three-month conflict has

been slow, keeping sentiment in check and the U.S. dollar

supported.

The risk-off sentiment meant the global AI selloff was back on

again as investors rotated out of technology stocks that have

surged this year. South Korea's KOSPI fell 4% in what is

proving a volatile week for the world's best-performing market.

The spotlight will be on U.S. inflation data later on Wednesday

to gauge the impact of the war, with a Reuters survey of

economists predicting U.S. consumer inflation probably increased

at its fastest pace in three years in May.

The report may bolster expectations of rate hikes from the

Federal Reserve, especially after last week's

stronger-than-expected jobs report. Traders are pricing in a

25-basis-point hike in December compared to two rate cuts

expected in 2026 before the war.

Key developments that could influence markets on Wednesday:

US May CPI

UK May housing survey