BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - European stocks may struggle for direction at open on Friday as rising energy prices and Treasury yields added to concerns about the outlook for interest rates.
As inflation risks increase due to the conflict in the Middle East, traders are bracing for interest rate hikes well into next year.
The outlook remains highly uncertain, with risks tilted upward for inflation and downward for growth, European Central Bank (ECB) President Chritine Lagarde warned Thursday after raising three key interest rates by 25 basis points.
All eyes now turn to the U.S. consumer price index reading for August later in the day, with economists projecting headline inflation at 0.4 percent month-on-month and 3.4 percent year-on-year.
The CPI data will be a key input for the Federal Reserve's September 16 interest-rate decision. The odds of a rate hike next week currently stand at 70 percent after a report showed increasing wholesale prices.
Asian markets were deep in the red, with benchmark indexes in Japan and South Korea falling around 2 percent, as investors fretted about the inflationary impact of elevated crude prices amid escalating geopolitical concerns.
Brent crude futures fell toward $107 a barrel but were on track for a weekly gain of about 12 percent on concerns over prolonged disruptions to global energy supplies.
The U.S. dollar held near a one-week high while gold held near a one-week low at $4,334 an ounce.
U.S. stocks ended lower for a fourth consecutive session overnight as oil prices climbed further and the yield on the 10-year Treasury note rose above 4.95 percent to its highest level in almost three years following reports that the Iran-backed Houthis are seeking to control the whole Yemeni Red Sea coast.
Adding to investor anxiety, President Donald Trump said he doesn't think the Iran war will end until after November's midterm elections and that oil prices will not come down until then.
The Wall Street Journal reported, citing U.S. officials that the conflict could drag on through the remainder of his term, which ends in January 2029.
Mixed producer inflation data also weighed on markets. While producer prices increased in line with economist estimates on a monthly basis in August, the annual rate of price growth came in at 5.4 percent, accelerating from July's revised 4.8 percent and surpassing market expectations for 5.1 percent growth.
The Dow and the S&P 500 both dropped around 0.6 percent to reach their lowest closing levels in over a month, while the tech-heavy Nasdaq Composite fell 0.7 percent.
European stocks hit two-month lows on Thursday as the European Central Bank raised interest rates for the second time this year and warned that inflation is set to remain well above target for an extended period.
The pan-European STOXX 600 fell 0.7 percent. The German DAX dipped 0.8 percent, France's CAC 40 shed half a percent and the U.K.'s FTSE 100 declined 0.6 percent.
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