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

Stella Qiu

We are back to war watching, as if the June ceasefire never

happened. After weeks of dozing through simmering U.S.-Iran

tensions, investors got a rude awakening overnight: oil prices

surged 7% to top $100 a barrel, and inflation is again on

everyone's list of fears.

The shock came from the Red Sea, where Iran-aligned Houthis

attacked two Saudi oil tankers, threatening to choke off another

vital Middle East artery for global oil supplies. President

Donald Trump was not subtle, threatening "major military

punishment" and fuelling fears the conflict is widening.

With the world already running low on oil reserves, the risk

is that a protracted energy shock stokes global inflation and

de-anchors inflation expectations, a central bank's nightmare.

Brent is up nearly 40% this month.

Longer-dated Treasuries bore the brunt of the selling, with

30-year Treasury yields now marching towards a 19-year peak of

5.201%. Benchmark 10-year yields hit a new 18-month top of

4.7135% on Friday.

Any lingering hopes of central bank policy easing have

evaporated. Markets now see a one-in-three chance of a rate hike

from the Federal Reserve as soon as next week, a sea change from

merely a week ago, and are fully priced for two moves by January

next year.

The broader worries of oil and rates sent Asian shares deep

in the red, with South Korea's KOSPI down 6% and Japan's Nikkei

sliding 2.8%. Local semiconductors couldn't even find relief in

Intel Corp's ( INTC ) bumper results that sent its shares up

over 4% after the bell.

Adding to the gloom, the AI trade is showing further signs of

fatigue, with investors growing uneasy about higher capex plans

by tech giants. Tesla shares tumbled around 14% on Wall

Street after it posted its first cash burn in two years.

Alphabet fell about 7%, with the Google parent also

burning through cash as it ramped up AI spending.

Amid all the mayhem Trump's latest tariff wheeze raised barely

an eyebrow, though the timing of making U.S consumers pay yet

more for imports seems economically dubious.

Nasdaq futures are a shade lower, but European bourses are

headed for a steady open. All eyes are on PMI surveys due in

Europe, Britain and the United States.

The U.S. measure is seen holding on to its relative

strength. Any upside surprises could see investors push the

chance of a July Fed rate hike to 50/50.

Key developments that could influence markets on Friday:

-- UK retail sales data for June

-- UK, EU, US flash manufacturing, services and composite

PMIs for July