(RTTNews) - European stocks are seen opening on a cautious note on Monday due to continued uncertainty over the end to the U.S.-Iran war in the Middle East after U.S. President Donald Trump rejected Iran's latest proposal to reopen the Strait of Hormuz and signaled possible new military strikes after midterm elections.
While Trump said he expects negotiations to resume this week. Iran said it would not soften its conditions.
Iran's Foreign Minister Abbas Araghchi expressed hopes for a diplomatic solution, but warned the country is prepared for war with the United States to resume.
"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," Araghchi told NBC News.
Meanwhile, Trump said he is still looking "very seriously" at implementing a U.S. ban on diesel exports to combat high prices, which could help lower U.S. diesel prices initially and lift European wholesale cots by about 2 percent.
Rising U.S. Treasury yields may also keep investors on edge after several Federal Reserve officials flagged more tightening ahead, citing resilient economic growth and a strong labor market.
Cleveland Fed President Beth Hammack said on Friday that "the biggest risk with inflation is the formation of an inflationary mindset and the public has been dealing with above-target inflation for an extended period."
Investors are pricing in another interest rate hike from the Federal Reserve before year-end.
Asian markets were mixed, with South Korea's Kospi falling nearly 2 percent as trading resumed after a holiday.
China's Shanghai Composite index was down 1.9 percent after data showed China's industrial profits grew at their weakest pace this year in August, expanding just 4.2 percent from a year earlier.
Also, China has confirmed a two-month extension of the trade truce with the U.S. following a recent summit.
Elsewhere, a gauge of Japan's service-sector inflation rose in August at the fastest annual pace in more than two years.
Minutes from the Bank of Japan's July 30 to 31 meeting revealed broad agreement on rising inflation risks, raising speculation the central bank could raise its benchmark rate for a second straight month when the board meets in October.
The U.S. dollar index held near a two-month high while gold tumbled more than 2 percent below $4,200 an ounce on higher yields and hawkish bets.
Brent crude prices soared nearly 3 percent to trade above $107 a barrel in Asian trade on renewed concerns about energy supply.
U.S. stocks closed higher on Friday and notched their first weekly gain in the last three as oil prices pulled back on reports about a potential deal to end the prolonged U.S.-Iran conflict, helping ease pressure on Treasury yields that had recently surged to multi-decade highs.
It was said that Iran has submitted a proposal to the U.S. to end the war and reopen the Strait of Hormuz within seven days if Washington accepts its conditions.
The yield on the 10-year Treasury briefly jumped to 5.22 percent earlier in the day after a survey showed U.S. consumer sentiment has fallen to a four-month low in September due to rising inflation fears, with year-ahead inflation expectations rising to 4.6 percent in September, the highest reading since June and up from 3.4 percent before the Iran conflict began.
The S&P 500 rose half a percent to snap a three-day losing streak. The Dow advanced 0.9 percent and the tech-heavy Nasdaq gained half a percent.
European stocks ended broadly higher on Friday and notched their first weekly gain in a month after reports suggested the U.S. and Iran were moving closer to an agreement regarding naval blockades and easing economic measures.
The pan-European STOXX 600 rose 0.4 percent. The German DAX climbed 0.6 percent and the U.K.'s FTSE 100 inched up 0.1 percent while France's CAC 40 finished marginally lower.