The lack of concrete progress toward ending the ongoing war between the United States, Israel and Iran created a cautious mood in global markets at the start of the week. Geopolitical developments in the Middle East continued to be a key factor as investors sought direction.
Tensions between the United States and Iran, Israel's new attacks on Lebanon and assessments that the United States could impose additional economic sanctions on Iran increased uncertainty. Analysts said this geopolitical uncertainty was one of the main factors weighing on risk appetite.
Signs of weakness in the U.S. economy
Data released in the United States last week fell short of expectations, causing risk appetite in global markets to weaken on Friday. Retail sales, which had been expected to increase, fell 0.6% in July, marking their first decline since October 2025.
The University of Michigan's consumer sentiment index also fell to 51 in August. Both the decline in retail sales and the weakness in consumer sentiment intensified questions about the momentum of consumer spending later in the third quarter.
The data showed that the U.S. public had become more pessimistic in its assessment of the economy and that concerns about the growth outlook had increased. Despite indicators last week pointing to a slowdown in U.S. inflation, uncertainty over the agreement process in the Middle East limited risk appetite in global markets.
The decline in retail sales following the slowdown in U.S. inflation strengthened expectations that the Federal Reserve would leave its policy rate unchanged next month. In money-market pricing, the probability of a rate hike in September fell to 30%, while expectations for a rate hike by the end of the year also weakened.
Investors are expected to focus this week on the minutes of the Federal Reserve's meeting. As expectations for rate hikes declined, the yield on the U.S. 10-year Treasury note fell 2 basis points to 4.68%, while the dollar index declined 0.2% to 99.5.
Gold rose 0.5% to $4,396 an ounce. October-dated Brent crude also increased 0.1% to $88.70 a barrel amid uncertainty over U.S.-Iran diplomacy.
New York indexes ended Friday lower
Indexes on the New York Stock Exchange fell on Friday. The Dow Jones declined 0.2%, the S&P 500 fell 0.17% and the Nasdaq lost 0.28%. U.S. stock-index futures were mixed at the start of the week.
Reddit shares ended the day up about 13% after the company announced that it would be added to the S&P 500 index on August 18.
European markets saw widespread selling
European stock markets were dominated by selling on Friday after geopolitical risks pushed oil prices higher. Eurozone gross domestic product grew 0.4% quarter on quarter and 1% year on year in the second quarter, in line with expectations.
The FTSE 100 in the United Kingdom fell 0.21%, France's CAC 40 declined 0.16% and Italy's FTSE MIB 30 lost 0.2%. Germany's DAX 40 rose 0.53%. European stock-index futures started the week mixed.
Asian markets rose
Asian markets were mostly higher on the first trading day of the week. Weaker expectations of a Federal Reserve rate hike supported technology stocks, while macroeconomic data from the region also remained in focus for investors.
Japan's economy grew 0.3% quarter on quarter and 1.1% year on year in the second quarter, but the results fell short of expectations. The data showed that the positive impact of strong exports was limited by weak domestic demand and that economic growth had slowed.
Japan's industrial production rose 1.9% month on month and 4.9% year on year in June, exceeding expectations. The dollar-yen exchange rate fell 0.1% to trade at 159.1.
Near the close, the Nikkei 225 rose 0.3%, the Shanghai Composite gained 0.8% and the Hang Seng climbed 1.6%. South Korea's stock market was closed for a holiday.
