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

Wee

Oil prices climbed on Tuesday, after the U.S. military

conducted strikes in southern Iran in what it described as

defensive actions, just as investors were growing more hopeful

of a peace deal between the two nations.

The strikes came as Iran's top negotiator and its foreign

minister were in Doha on Monday for talks with Qatar's prime

minister on a potential deal with the U.S. to end the

three-month-old war.

Washington and Tehran have played down hopes for an imminent

breakthrough. That kept optimism in check, with the dollar

regaining some of its safe-haven appeal while stocks were mixed.

Investors are hoping for a deal to end the war, with focus

on the reopening of the Strait of Hormuz.

Japan's Nikkei newspaper reported that the U.S. and Iran are

discussing a plan to open the waterway about 30 days after the

two countries reach a deal to end hostilities, though details

remain scant.

Until then, energy prices are likely to remain elevated,

putting policymakers in a bind and adding more pressure on

businesses and everyday consumers as inflation picks up.

In Sri Lanka, the central bank caught markets off-guard by

raising its benchmark policy rate by an outsized 100 basis

points, in a bid to stem inflation and sharp pressure on the

currency.

Meanwhile, Bank of Japan Deputy Governor Ryozo Himino said

developments in the Middle East will factor into the central

bank's rate-hike timing.

Investors are now leaning toward a 25-basis-point rate hike

from the Federal Reserve by December, a sea change from the two

cuts priced in at the start of the year, while the European

Central Bank and the Bank of England are also seen tightening

policy.

On the data front, the Conference Board's U.S. Consumer

Confidence Index is due later on Tuesday.

The index is expected to edge down eight-tenths of a point

to 92 in May, with higher gasoline prices triggered by the Iran

war likely to remain a source of concern for consumers.

Key developments that could influence markets on Tuesday:

- U.S. consumer confidence (May)

(Editing by Jacqueline Wong)