Hormuz Tensions and Diesel Prices Fuel Market Volatility Ahead of Key Rate Decisions

Asian technology shares surged at the beginning of the week, but market sentiment remains fragile due to escalating tensions near the Strait of Hormuz and an upcoming inflation report.

The Nikkei index in Japan rose by around 2% after semiconductor stocks performed strongly, while South Korea's Kospi gained about 3% to reach 6,900. Goldman Sachs analysts forecast a further 75% rise in the Kospi to 12,000 points, but this prediction is hardly unprecedented.

The US market was quiet on Monday due to a public holiday, which temporarily reduced the risk of a sharp deterioration in sentiment on Wall Street.

Brent crude rose by around 0.6% to $96.85 a barrel, while US crude climbed to $92.10, an unfavorable signal for the market as diesel fuel reached a record price last week.

The higher diesel prices are particularly important for inflation because the fuel is widely used in trucking, maritime transport, agriculture, and industry. A high inflation reading would increase pressure on the Federal Reserve to raise rates as early as this month if core inflation rises by more than 0.2% month-on-month.

The European Central Bank is expected to raise its rate to 2.50% at Thursday's meeting, with investors' main focus being on its assessment of further monetary tightening.