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

Ankur Banerjee

Oil, not AI, is driving global markets as investors struggle

with contrasting signals: hopes of mediation in the

fast-spreading war in the Middle East against the backdrop of

escalating U.S.-Iran attacks in the five-month-old conflict.

Brent futures eased away from a one-month high on

Tuesday as investors latched on to hopes of a resolution soon,

but the market has been here before plenty of times since the

war erupted, and the risk remains of another disappointment.

Yemen's Iran-aligned Houthis said they would impose a naval

blockade on Saudi Arabia, a move that could lead to further oil

supply shockwaves. But markets are focusing on news that Tehran

had received a proposal from mediators for a 10-day ceasefire.

The drop in oil prices lifted sentiment, allowing traders to

gorge on singed Asian chip stocks, taking South Korea's KOSPI

up nearly 5% on the day. The index is still down 19% in

July but up 62% in 2026 as worries around the AI trade linger

ahead of the crucial earnings season.

Global stocks, led by chipmakers, have been hit by severe

volatility in recent weeks as investors fret about high

valuations, the pace of profit growth and whether the investment

into AI infrastructure will yield tangible results.

European futures were 0.3% lower, indicating

sentiment remains fragile as the recent escalation in

hostilities has revived inflationary worries. Those worries have

lifted yields and kept the U.S. dollar on a stronger footing.

Meanwhile, Britain's seventh prime minister in a decade,

Andy Burnham, faces several challenges in his new role, from a

sluggish economy to worries about fiscal discipline and the

fallout from the Iran war.

Burnham said on Monday he would stick to the previous

government's fiscal rules, although he would use any flexibility

within them. That was enough for a sharp drop in sterling and

British government bonds on Monday.

Key developments that could influence markets on Tuesday:

Economic events: UK wage data for May, July ZEW sentiment survey

data for euro zone and Germany

Earnings: Julius Baer and Novartis