Hello, this is Leonie Kidd reporting from London.

The perception of plentiful supply is diminishing, and expectations of a swift return to stability in the Strait of Hormuz remain overly optimistic. Commodity expert Jeff Currie issues this caution as Middle East tensions push oil prices upward once more.

As U.S. markets reopen following the extended Labor Day weekend, trading trends appear likely to hinge on developments in the Strait and efforts to address disruptions in this crucial energy corridor.

Key points to consider today

• Oil prices have surged to six-week highs, with West Texas Intermediate exceeding $93 per barrel and Brent crude futures approaching the $100 threshold, currently trading above $97 in early Tuesday trading.
• Fresh attacks targeted Saudi Aramco facilities on Monday, according to a Financial Times report, increasing uncertainty in energy markets. These incidents followed U.S. military action against three Iranian tankers.
• These reciprocal strikes have contributed to rising fuel costs.
• In the United States, gasoline prices have surpassed $4 per gallon, reaching record levels for Labor Day.

Canada caught in the spotlight

Amid growing tensions, Iran has directed criticism toward Canada for backing U.S. operations in the Strait of Hormuz.

In a statement on X, Iran’s Foreign Ministry spokesperson Esmaeil Baghaei claimed Canada opted to accommodate the U.S. on the same day President Biden showed disregard for Canadian sovereignty by treating the entire nation as part of the United States.

At the same time, Canada’s new tariffs on approximately $20 billion in U.S. imports come into effect on Tuesday, with Bombardier becoming a focal point. The Canadian aerospace manufacturer has outlined its U.S. presence following President Donald Trump’s post on Truth Social stating, “NO MORE SELLING BOMBARDIER IN THE UNITED STATES!… If they want our Market, they must build here, and stop treating America like a ‘piggybank.'”

Weathering volatility

Global markets continue to absorb geopolitical turbulence, though HSBC identifies factors that could alter this trend. Learn more here.

U.S. futures show mixed performance after the extended Labor Day break. In Asia, Japanese stocks face pressure as the yen remains strong against the dollar, near its highest level since February.

The Mistral model

European AI standout Mistral has secured €3 billion ($3.5 billion) in funding at a €21 billion ($24 billion) valuation, with Samsung Electronics participating.

— Leonie Kidd

And Finally…Inside Italy’s banking M&A boom — and why Wall Street is watching

Italy has emerged as the hub of Europe’s banking consolidation wave, with a series of acquisition attempts transforming the nation’s financial landscape. This video explores the forces behind the dealmaking, the battles for influence over banks like Monte dei Paschi and Mediobanca linked to insurer Generali, and why the results may impact Europe’s push to develop larger banks able to compete with U.S. counterparts.

— Gaelle Legrand

China’s finance ministry is leading a smaller-than-expected $54 billion capital injection into state-owned banks and insurers, as Beijing seeks to foster growth with restrained stimulus.

Three state lenders and five insurers will get a combined 360 billion yuan ($53.6 billion) from state institutions, led by the Ministry of Finance and the country’s tobacco giant. It’s the first time that Beijing has extended recapitalization to insurers, as stress in the country’s financial system spreads. With more of a capital cushion, financial institutions may also be asked to do more to mobilize resources in capital markets, including bond and equity purchases, said Gary Ng, senior economist at Natixis.

The recapitalization was smaller in scale than markets had anticipated for these financial institutions, according to Citibank. “This downsized package underscores the healthier capital positions of Chinese insurers, indicating an overall lower urgency for aggressive capital replenishment.”

Hong Kong-listed shares of the banks and insurers slumped Monday, underperforming the broader market. The Hang Seng Index fell less than 1%, while Agricultural Bank of China and Industrial and Commercial Bank of China dropped 2.7% and 2.3%, respectively. China Taiping Insurance lost almost 4%, while People’s Insurance Company of China and China Life Insurance each fell more than 2%.

The moves build on a 500 billion yuan capital injection into four major state banks last year and a pledge in March to issue 300 billion yuan in special treasury bonds this year to replenish capital at large state lenders. China’s banking sector has been grinding through a multiyear margin compression, as Beijing pushes lenders to keep credit cheap for struggling borrowers. The net interest margins — the spread between what banks earn on loans and pay on deposits — fell to record lows this year.

Beijing is preparing lenders to finance its next strategic investment cycle, “particularly the massive capital requirements of AI and advanced technology,” said Han Shen Lin, China country director at The Asia Group. “China is effectively using state capital to strengthen the banking system’s shock absorbers.”

Injection details

Agricultural Bank and ICBC, two of the country’s largest state banks, plan to raise up to 160 billion yuan and 100 billion yuan, respectively, through private A-share placements to a group of institutions, including the finance ministry, and China National Tobacco Corp and its subsidiaries. Proceeds will be used entirely to replenish capital, according to their statements on Sunday.

The Export-Import Bank of China will get a direct 30 billion yuan injection from the finance ministry, aimed at strengthening its ability to “provide funds to the real economy and withstand potential risks.”

Falling market interest rates have limited banks’ ability to rebuild capital through retained earnings, making external injections critical, said Bruce Pang, a member of the Chief Economist Forum in China, adding that the state push would strengthen lending power at large state-owned banks, allowing “higher-quality” financial support for the economy and the priority sector.

The recapitalization also gives banks room to accelerate the disposal and write off of non-performing loans, offsetting “potential asset quality pressure down the road,” said Citibank analyst July Zhang.

“The capital pressure on China’s big banks could start easing,” Zhang said, as policymakers prioritize quality growth and ease pressure on banks to chase fast loan growth, while credit demand remains weak.

China’s insurers have seen solvency ratios deteriorate as persistently low rates squeeze profitability. The solvency ratio of the insurance sector dropped to 180.6% at the end of the second quarter, from 204.5% last year, though higher than the regulatory requirement of 100%.

Lack of credit demand

The capital injections are likely to have “only a very limited short-term impact on the economy,” said Larry Hu, chief China economist at Macquarie, as the binding constraint on bank lending is weak credit demand, rather than a lack of bank capital.

Growth has faltered further in the world’s second-largest economy into the third quarter this year. Beijing’s policy tone has shifted to acknowledging “difficulties and challenges” in the economy, a marked shift from earlier language describing growth as “better than expected,” Hu said.

Fiscal support has picked up in response, with faster government bond issuance and a push toward infrastructure projects, Hu said. But he doesn’t expect a major stimulus push. “We expect policymakers to do just enough to meet this year’s growth target,” he said. “Incremental stimulus should be sufficient.”

Oil prices increased on Tuesday, marking the third consecutive day of gains, and remained near six-week highs due to concerns about escalating tensions in the Middle East after the U.S. and Iran exchanged strikes over the weekend.

Brent crude futures for November delivery rose by 0.20% to $97.20 per barrel. Meanwhile, U.S. West Texas Intermediate futures for October climbed by 1.07% to $92.56 per barrel.

The U.S. military targeted three Iranian oil tankers on Saturday in response to Iran’s ballistic missile attacks on two Navy warships. The Iranian Foreign Ministry condemned the attacks on commercial vessels as a “war crime” and an act of “economic warfare.”

“This seems to be a significant escalation, and tensions have intensified once again,” commented David Morrison, senior market analyst at Trade Nation. He referenced U.S. Energy Secretary Chris Wright’s statement that it might be impossible to prevent Iran from acquiring a nuclear weapon through negotiations.

The retaliatory strikes over the weekend also contributed to a rise in gas prices, which reached record highs.

Ongoing tensions between Washington and Tehran were evident. Iranian Parliament Speaker Mohammad Bagher Ghalibaf posted on X on Monday, “Strike our assets and you get struck.”

This was in response to a post by Defense Secretary Pete Hegseth, who stated that the U.S. “will destroy (and sink)” Iranian oil tankers if Iran attacks U.S. vessels.

On Monday, Goldman Sachs revised its price forecasts upward, increasing the estimates for Brent and WTI by $5 each. The new forecasts are $85 and $80 per barrel for December 2026, and $80 and $75 per barrel for 2027.

The bank anticipates that disruptions to Middle East shipping will persist into 2027, with production expected to recover gradually in the second half of 2027. “Markets are increasingly factoring in a prolonged conflict in the Middle East,” Goldman noted. Additionally, crude tanker rates from the Persian Gulf to China in the second quarter of 2027 now reflect expectations of shipping disruptions extending into that period.

President Trump posted on Monday that “Oil prices will fall sharply … when we achieve victory in the war with Iran.”

—Verum’s Greg Iacurci contributed to the report.