Global markets were lower as a selloff in U.S. government bonds picked up pace, sending the 30-year Treasury yield to a near two-decade high as fears of an escalation in the Middle East war fuelled inflation worries and pressured stocks.

The market’s reaction shows that tensions in the Middle East remain a potent source of risk, with a renewed escalation capable of reverberating across oil, bonds, currencies and equities.

Wall Street futures were in the red after major North American markets closed down yesterday.

TSX futures followed sentiment lower.

On Wall Street, markets are watching earnings from Home Depot Inc. and Baidu Inc.

China’s Baidu missed Wall Street estimates for second-quarter revenue on Tuesday as declines in its core advertising business offset growth in AI-linked cloud services, sending its U.S.-listed shares down 3.5 per cent in premarket trading.

“The unresolved standoff argues for maintaining hedges against renewed oil and inflation volatility,” strategists at Gramercy Funds Management wrote.

Overseas, the pan-European STOXX 600 was down 0.5 per cent in morning trading. Britain’s FTSE 100 was little changed, Germany’s DAX declined 0.32 per cent and France’s CAC 40 retreated 0.42 per cent.

In Asia, Japan’s Nikkei closed 2.54 per cent lower, while Hong Kong’s Hang Seng edged up 0.07 per cent.

 Oil prices rose for a third session as prospects receded for a deal to end the Middle East war, with Iran saying it would adopt a more offensive stance and the U.S. ruling out extending a ceasefire deal, heightening worries about energy supply.

Iran will shift to a “fully offensive” military posture as efforts have stalled towards a permanent end to the war, a senior Iranian official said yesterday, as Washington ruled out extending its temporary ceasefire pact.

Brent crude futures edged up 0.03 per cent to US$90.90 a barrel. West Texas Intermediate (WTI) crude futures advanced 0.53 per cent to US$84.95 a barrel.

“Oil has jumped to start the week as U.S.-Iran relations look increasingly shaky,” said Tim Waterer, chief market analyst at KCM.

“A deal to reopen the Strait of Hormuz still does not appear to be in sight, and shipping numbers remain at a trickle.”

In other commodities, spot gold was down 0.5 per cent to US$4,391.77 an ounce, while U.S. gold futures for December delivery dropped 0.6 per cent to US$4,447.30.

The Canadian dollar strengthened against its U.S. counterpart.

The day range on the loonie was 72.04 US cents to 72.15 US cents in early trading. The Canadian dollar was up about 1.72 per cent against the greenback over the past month.

The U.S. dollar index, which weighs the greenback against a group of currencies, slipped 0.03 per cent to 99.61. The dollar was pegged at $1.3871.

The euro declined 0.03 per cent to US$1.1578. The British pound slid 0.1 per cent to US$1.3530.

In bonds, the yield on the U.S. 10-year note was last up at 4.737 per cent.

5 a.m. ET: Canada’s existing home sales and average prices for July. Sales rose for the fourth straight month and property prices climbed incrementally, Rachelle Younglai reports, small signs that the market may be rebounding.

5 a.m. ET: Canada’s MLS Home Price Index for July. Estimate is a decline of 3.5 per cent year-over-year.

8:15 a.m. ET: Canadian housing starts for July. Estimate is an annualized rate rise of 4.6 per cent.

8:15 a.m. ET: U.S. ADP Employment (4-week average change) for Aug. 1.

8:30 a.m. ET: U.S. housing starts for July. Consensus is an annualized rate decline of 5.4 per cent.

8:30 a.m. ET: U.S. building permits for July. Consensus is an annualized rate decline of 0.3 per cent.

8:30 a.m. ET: U.S. import prices for July. The Street is projecting a rise of 0.1 per cent from June and up 6.9 per cent year-over-year.

9:15 a.m. ET: U.S. industrial production for July. Consensus is a month-over-month rise of 0.3 per cent with capacity utilization remaining 76.3 per cent.

10 a.m. ET: U.S. pending home sales for July.

With Reuters and The Canadian Press