Global stocks fell on Monday as the unresolved US-Iran conflict pushed oil prices sharply higher and investors prepared for a week of potentially market-moving economic data, while rising bond yields strengthened expectations that central banks will keep interest rates higher for longer.

The latest move in energy markets came after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, saying Tehran was desperate to reach a deal. Trump said negotiations would continue this week, but Iran has shown little indication that it is prepared to soften its position.

Brent crude futures rose as much as 3% to $107.16 a barrel, extending its monthly advance to nearly 20%. Oil is now almost 50% above its level before the war began in late February, while refined-product prices have risen even more sharply.

The surge is becoming a growing problem for financial markets because the shock is no longer confined to crude. A shortage of refining capacity has pushed diesel prices to record levels, raising concerns that higher energy costs could feed into transportation, production and eventually wage-setting decisions.

The development is yielding a more difficult environment for central banks. Policymakers have already responded with interest-rate increases, with the Reserve Bank of Australia expected to become the latest to tighten policy when it meets on Tuesday.

US markets are also pricing a significantly more restrictive Federal Reserve path. Futures imply a 68% probability of another Fed rate increase in October, with roughly 90 basis points of additional tightening priced through the end of next year.

The combination of stronger energy prices and higher expected interest rates is putting pressure on equity valuations, although strong US economic data have so far prevented a broader retreat from risk assets.

“The global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades,” Bruce Kasman, chief economist at JPMorgan, said.

“Amidst strong growth and firming perceptions of resilience to high energy prices, it is no surprise that rates are moving higher while equity prices remain close to record levels,” Kasman added. “What is most notable about recent market moves is their extension of higher policy rates well beyond the coming year.”

MSCI’s All-World index fell 0.1% on Monday and remained on course for a 2.4% quarterly gain. S&P 500 futures dropped 0.3%, while Nasdaq futures fell 0.7%.

Bond Markets Signal a More Persistent Rate Shock

The sharper warning is coming from government bond markets. The yield on 30-year US Treasuries rose two basis points to 5.517%, close to its highest level since 2004. The long-term yield has climbed 27 basis points this month.

Two-year Treasury yields have risen 55 basis points in September, their largest monthly increase since February 2023, as investors have brought forward expectations for further Fed tightening.

The rise in yields matters for equities because higher risk-free returns increase the discount rate applied to future corporate earnings. Technology and other growth stocks are particularly sensitive because a greater portion of their valuations depends on earnings expected further into the future.

Yet the bond selloff does not appear to be driven entirely by fears of an uncontrolled inflation resurgence.

“Market-based measures of inflation expectations have been relatively stable and for U.S. markets at least, remain well off the highs back in May,” said Steven Major, global macro advisor at Tradition.

“Consequently, the upward movement in nominal Treasury yields is predominantly explained by higher real yields and shifting policy expectations, rather than a runaway inflation risk premium,” he said.

This means that markets are effectively confronting two forces at once: an economy that is proving more resilient than expected and an energy shock that could make it harder for central banks to ease policy.

The week’s economic calendar could determine whether that repricing continues. Investors are due to receive fresh readings on inflation, gross domestic product, manufacturing activity and employment, giving markets several opportunities to reassess the outlook for US growth and monetary policy.

Dollar Strengthens While Gold Loses Ground

The prospect of higher US interest rates has also supported the dollar. The dollar index climbed to a two-month high of 101.39 and was on course for its strongest monthly performance since June. The euro fell to $1.1383, taking its September decline to 2%.

The Japanese yen, meanwhile, strengthened against the dollar after Japan’s top currency diplomat, Atsushi Mimura, warned currency traders that Tokyo was prepared to respond to excessive declines in the yen.

The dollar was last down 0.3% at 156.83 yen.

Gold moved in the opposite direction, falling 3% to $4,151 an ounce. The metal has declined almost 7% this month as rising bond yields increase the opportunity cost of holding an asset that does not generate interest.

European stocks provided a partial counterpoint to the broader weakness. The STOXX 600 rose 0.4%, supported by defensive sectors such as pharmaceuticals as well as oil and gas companies, which are benefiting from higher energy prices.

Asian markets were weaker. China’s blue-chip CSI300 index fell 1.9% to its lowest level in a year after US lawmakers introduced legislation aimed at preventing the federal government from equipping sensitive systems with Chinese-made components used to transmit data in AI data centers.

The market backdrop is therefore becoming increasingly interconnected. The US-Iran conflict is pushing up energy costs; higher energy costs are complicating the inflation outlook, stronger inflation risks are reinforcing expectations for tighter monetary policy, and higher yields are putting pressure on asset valuations.

Additionally, resilient economic data are providing support for corporate earnings and preventing the energy shock from translating into a broad collapse in risk appetite.

China’s industrial profits slowed sharply in August, underscoring the growing gap between the country’s technology-driven manufacturing sectors and industries more dependent on domestic consumers.

Profits at China’s major industrial companies increased 4.2% from a year earlier in August, according to official data released Monday. It was the fourth consecutive month of slower growth and the weakest performance since November 2025, when industrial profits recorded a double-digit decline.

The August increase was a significant slowdown from the 24.7% growth recorded in April, when industrial earnings were benefiting from stronger momentum in manufacturing and the improving pricing environment.

For the first eight months of 2026, industrial profits rose 15.7% from a year earlier, down from the 17.6% increase recorded through July.

The figures point to a manufacturing sector that is still generating substantial earnings growth overall, but whose recovery is losing momentum as weak household demand and higher energy costs weigh on companies outside the strongest technology segments.

The slowdown also highlights a more important feature of China’s current economic expansion: industrial profitability is becoming increasingly concentrated in industries linked to artificial intelligence, advanced electronics and robotics, while consumer-facing businesses continue to struggle.

AI Boom Masks Weakness Across Consumer Industries

China’s industrial earnings staged a significant turnaround earlier this year. After increasing only 0.6% in 2025, following three consecutive years of declines, profits accelerated into double-digit growth in the first half of 2026. The improvement coincided with an end to nearly three years of factory-gate deflation and a surge in demand for products tied to AI infrastructure.

Chipmakers, computing-equipment manufacturers and other high-technology industries have benefited from the global expansion of AI investment. Robotics has also emerged as a major growth area as Chinese manufacturers increase spending on automation and compete to develop and deploy industrial and humanoid robots.

That strength, however, is not being distributed evenly across the manufacturing economy.

Consumer-related industries, including clothing, automobiles and furniture, have continued to report declining profits. These sectors are more directly exposed to household spending, making their performance an important indicator of the weakness in domestic demand that Beijing has been trying to address.

The divergence has birthed a more complicated picture than the headline 15.7% increase in industrial profits suggests. Strong earnings in AI-related manufacturing can lift aggregate industrial profits even while large portions of the consumer economy remain under pressure.

In effect, China’s manufacturing recovery is increasingly being driven by investment and demand for advanced technology rather than broad-based improvement in household consumption. It is considered a major issue because Beijing has repeatedly identified domestic demand as a priority for sustaining growth.

Price Wars and a High Comparison Base

The National Bureau of Statistics attributed part of August’s slowdown to a high comparison base.

Industrial profits had jumped 20.4% in August last year after several months of declines, making year-on-year growth this August more difficult to maintain. Beijing had also intensified efforts to curb price wars across several industrial sectors, which had contributed to weak pricing power and falling producer prices.

Yu Weining, chief statistician at the NBS, reiterated policymakers’ commitment to strengthening domestic demand and “optimizing” supplies. The high base provides an important explanation for the weaker August figure, but it does not fully remove the broader concern about the direction of industrial earnings.

The sequential loss of momentum has occurred even as China’s technology manufacturing sector remains strong. That suggests the slowdown is not simply a statistical distortion. Companies outside the strongest growth industries are still dealing with weak demand, intense competition, and elevated costs.

Energy prices add another pressure point.

Manufacturers facing higher energy costs must either absorb those increases, reducing margins, or pass them through to customers. Weak domestic demand makes the second option more difficult, particularly for companies already competing aggressively on price.

This means a difficult combination for manufacturers: higher input costs at a time when demand is not strong enough to consistently support higher selling prices.

The Bigger Problem Is Domestic Demand

The industrial profit figures provide another indication of why Beijing continues to emphasize consumption.

China has maintained strong manufacturing capacity and has become increasingly competitive in areas such as electric vehicles, batteries, solar equipment, semiconductors, robotics and AI infrastructure. But the ability of manufacturers to produce more does not necessarily translate into stronger corporate earnings if domestic consumers are unwilling or unable to absorb the additional output.

That imbalance has contributed to intense competition across several industries.

In sectors where supply has expanded faster than demand, companies have been forced to compete through lower prices, putting pressure on margins. Beijing’s efforts to curb destructive price competition are aimed partly at preventing that dynamic from spreading further.

The challenge is that reducing price competition does not automatically create new demand.

For household-oriented industries such as automobiles and furniture, stronger sales ultimately depend on consumer confidence, household income, and willingness to spend. Until those conditions improve more broadly, China’s industrial recovery is likely to remain uneven.

The contrast with AI-related manufacturing is notable. Global demand for computing equipment and chips can provide Chinese manufacturers with a source of growth that is less dependent on domestic household consumption. That is helping the industrial sector maintain relatively strong aggregate profits even as the broader economy struggles to generate a similarly broad consumption-led recovery.

What The Slowdown Means For China’s Economy

The August figures do not indicate that China’s industrial sector has entered a broad profit contraction. Industrial profits were still up 15.7% in the first eight months of the year, a substantial improvement from the near-flat performance recorded for all of 2025.

But the direction of travel has changed.

Four consecutive months of deceleration suggest that the powerful earnings rebound seen earlier this year is losing momentum. The question now is about AI and other high-growth manufacturing industries’ capacity to continue offsetting weakness elsewhere.

Analysts believe the answer will depend partly on global demand for technology products, but increasingly on whether Beijing can stimulate domestic consumption and reduce excess competition in traditional manufacturing.

The data also carry implications for China’s deflation problem. The end of factory-gate deflation earlier this year helped companies regain pricing power and supported the initial profit rebound. If weak demand pushes companies back toward aggressive discounting, the improvement in industrial margins could prove difficult to sustain.

That leaves a delicate balancing act for policymakers. Supporting advanced manufacturing can strengthen China’s position in strategically important technologies, but it can also increase productive capacity in industries already facing intense competition. At the same time, measures designed to support consumption need to generate enough household demand to absorb that capacity.

August’s 4.2% profit growth is thus seen as an indication of an industrial economy increasingly split between globally competitive technology sectors benefiting from the AI investment boom and consumer-facing industries still waiting for a broader recovery in domestic demand.

Europe is moving to bring more of its most sensitive satellite data and computing workloads under the control of domestic technology providers, with OVHcloud and CGI winning a 30-month European Space Agency contract to build infrastructure for storing and processing Earth observation data.

The project, known as Digital EO, will combine cloud storage, computing capacity and artificial intelligence tools to support researchers, governments and businesses working with satellite data. The system will be deployed across Italy, France and Germany, with support operations based in Poland, according to the companies.

The contract comes as European institutions seek greater control over the infrastructure underpinning strategic programmes, particularly as the region’s dependence on US technology companies has become a growing policy concern.

ESA expects to hold more than 500 petabytes of Earth observation data by 2035. Managing that volume will require substantially more storage and computing capacity, while the growing use of AI in satellite imagery is increasing demand for infrastructure capable of processing data closer to where it is generated and used.

OVHcloud, Europe’s largest cloud provider, will provide the computing, storage and network infrastructure for the system. CGI will serve as the architect and systems integrator.

“Europe absolutely must have control over the infrastructure that runs its most strategic programmes,” OVHcloud CEO Octave Klaba said.

The contract is part of a broader European push to develop a domestic cloud and computing ecosystem capable of supporting government workloads without relying exclusively on infrastructure controlled by providers headquartered outside the region.

The ESA award is significant because Earth observation data is increasingly valuable for more than scientific research.

Satellite imagery can support environmental monitoring, agriculture, climate modelling, disaster response, infrastructure planning, maritime surveillance and other government functions. As AI systems become more capable of analyzing large quantities of imagery, the infrastructure used to store and process that information becomes strategically important in its own right.

Digital EO is intended to connect with existing national and European facilities rather than operate as an isolated cloud environment.

It will also support major European initiatives including Copernicus, the European Union’s Earth observation programme, and DestinE, the EU’s digital twin of Earth.

That architecture points to a broader European strategy: rather than simply building another cloud platform, European institutions are trying to create an interconnected computing environment in which strategic data can remain within infrastructure governed by European organizations and rules.

The approach also has an economic dimension. Public-sector contracts of this scale can provide European cloud companies with large anchor customers, helping them invest in capacity that can subsequently support commercial workloads.

A Challenge to US Cloud Dominance

The project follows a €180 million cloud procurement awarded exclusively to four European companies in April, highlighting the growing preference among European institutions for locally controlled cloud infrastructure. The policy shift comes as governments across Europe reassess their dependence on US technology suppliers for critical digital infrastructure.

Amazon Web Services, Microsoft Azure and Google Cloud dominate much of the global cloud market, giving US companies a substantial advantage in scale, capital and technology.

European providers have struggled to match that scale. Their argument is instead increasingly centered on sovereignty, jurisdiction, data control and the ability of European governments to determine how strategic workloads are handled.

The ESA contract fits directly into that approach.

For OVHcloud, securing large institutional workloads can also strengthen its position as European governments look for alternatives to the largest US cloud platforms.

The company has invested heavily in expanding data-center capacity and positioning itself as a European alternative for customers that place a high value on data sovereignty.

The Digital EO project gives it an opportunity to apply that infrastructure to one of Europe’s largest growing datasets.

Earth Observation Is Becoming An AI Infrastructure Problem

The volume of satellite data expected by ESA illustrates another reason the project matters. More than 500 petabytes of data by 2035 represents an enormous storage requirement, but storage is only one part of the challenge.

The value of Earth observation increasingly comes from analyzing the data rather than simply collecting it. AI models can identify changes in land use, track environmental conditions, process weather information, and extract patterns from imagery that would be difficult to detect manually.

That requires substantial computing capacity.

Digital EO is therefore being designed around storage, compute and AI tools together, rather than treating satellite data as a conventional archive. This could become more useful as Europe expands the use of AI for climate modelling and other Earth observation applications.

The ability to process data within a European-controlled infrastructure could also reduce the need to transfer large datasets between different jurisdictions and cloud environments.

The Project Adds To Europe’s Security Push

The ESA contract is also part of a broader effort to strengthen Europe’s control over Earth observation capabilities.

Earlier in September, ESA awarded parallel study contracts to teams led by Finland’s ICEYE and Italy’s Leonardo to develop a separate security-focused Earth observation architecture for EU governments.

The two initiatives are different, but they point in the same direction.

Europe is seeking to build infrastructure capable of supporting civilian scientific programmes while also strengthening the resilience and security of systems that governments increasingly depend on.

Digital EO will be deployed in Italy, France and Germany, with operational support from Poland. Its connection to Copernicus and DestinE means that the infrastructure could become part of a much broader European digital ecosystem.

The project’s geographic distribution also reduces dependence on a single national facility and provides a basis for cross-border access to computing and storage resources.

OVHcloud and CGI described the contract’s value as “multi-million” euros, while ESA did not disclose the exact figure.

The financial value, however, is only one measure of its importance. The more consequential development is the type of infrastructure Europe is choosing to build and who will control it.

The project shows that Europe’s cloud strategy is increasingly moving beyond the question of price and computing performance. For strategic government workloads, control over infrastructure, data jurisdiction, and supply chains is becoming part of the procurement decision.

As Europe’s satellite data volumes expand and AI makes that data more computationally valuable, the competition between European and US technology providers is likely to extend deeper into the infrastructure layer. Digital EO is an early example of that shift, placing European cloud providers at the center of an effort to build the computing backbone for one of the region’s most strategically important data resources.