Oil prices jumped, US bond yields rallied and equities retreated Tuesday, as the Federal Reserve looked set to hike interest rates with high inflation and AI concerns dominating market sentiment.
With crude futures pushing towards $110 a barrel, average diesel prices in the United States struck a record high of just under $6.27 a gallon, heaping pressure on President Donald Trump ahead of midterm congressional elections.
"There's no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates," noted Susannah Streeter, chief investment strategist at Wealth Club.
The US Federal Reserve begins a key rate-setting meeting Tuesday with markets expecting policymakers to pull the trigger on a hike to tackle persistently high consumer prices in the world's biggest economy.
Market expectations for a 25-basis-point rate increase have surged after official data published last week showed US annual inflation remaining far above the Fed's target, boosting the dollar.
With the crisis in the Middle East showing few signs of abating and Yemen's Houthi rebels taking control of a crucial outlet for shipping, crude has spiked this month to more than $100 a barrel.
The surge in energy costs has ramped up pressure on central banks to raise borrowing costs.
The European Central Bank last week lifted interest rates in the eurozone, although the Bank of England is forecast to maintain its benchmark cost on Thursday, as the UK economy struggles for growth.
European and Asian stock markets dropped Tuesday after Wall Street kicked off its week with losses.
There has been renewed weakness for technology stocks after executives driving the AI sector said advances in artificial intelligence should be slowed.
Trump on Monday dismissed fears that artificial intelligence could wipe out humanity, repeatedly calling them a hoax and rejecting global calls to put guardrails around the fast-moving technology.
Anthropic chief Dario Amodei, whose company makes the popular Claude AI system, opened the floodgates on Saturday when he called for the sector to slow down.
His comments were echoed by OpenAI's Sam Altman and SpaceXAI's Elon Musk.
Microsoft on Monday published a "humanist AI code of conduct" as the concerns grew.
"AI should not exceed human control. Models should remain subordinate to humanity," read one part.
Brent North Sea Crude: UP 1.6 percent at $107.32 per barrel
West Texas Intermediate: UP 2.2 percent at $103.54 per barrel
London - FTSE 100: DOWN 0.3 percent at 10,663.02 points
Paris - CAC 40: DOWN 0.2 percent at 8,089.28
Frankfurt - DAX: DOWN 0.5 percent at 25,387.34
Tokyo - Nikkei 225: FLAT at 63,484.10 (close)
Hong Kong - Hang Seng Index: DOWN 1.0 percent at 24,667.24 (close)
Shanghai - Composite: DOWN 0.5 percent at 3,864.28 (close)
New York - Dow: DOWN 0.3 percent at 52,421.20 (close)
Dollar/yen: UP at 154.82 yen from 154.34 yen on Monday
Euro/dollar: DOWN at $1.1538 from $1.1547
Pound/dollar: DOWN at $1.3475 from $1.3500
Euro/pound: UP at 85.64 pence from 85.53 pence
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