Benchmark oil prices extended gains toward their largest ever monthly increase on Monday, as major Wall Street indexes were mixed in choppy trade and investors focused on the war on Iran that they fear will drive inflation and raise the risk of recession across the globe.

U.S. Treasury prices rose, with yields declining across the curve as mounting global growth concerns eclipsed inflation worries. Investors are increasingly uneasy about a war entering its fifth week with no clear path to resolution. [US/]

Trump said the U.S. was in serious discussions with a “more reasonable regime” to end the war that has widened since it began a month ago with U.S. and Israeli attacks on Iran.

But he repeated his warning to Iran to open the Strait of Hormuz or risk U.S. attacks on Iranian oil wells and power plants.

Federal Reserve Chair Jerome Powell said the U.S. central bank can wait to see how the Iran war affects the economy and inflation, noting policymakers typically look through shocks such as those from higher oil prices.

Data showed inflation in Germany, the euro zone’s largest economy, gathered pace in March due to surging energy prices. Economists see further increases ahead.

Crude Prices Keep Rising

Brent crude futures settled up 0.2% at $112.78 per barrel, as U.S. crude surged 3.3% to $102.88. [O/R]

On Wall Street, the Dow Jones Industrial Average rose 0.11% to 45,216.14. The S&P 500 fell 0.39% to 6,343.72 and the Nasdaq Composite lost 0.73% to 20,794.64.

The pan-European STOXX 600 reversed early losses to advance and Europe’s broad FTSEurofirst 300 index also rose.

“Oil is the lightning rod right now,” said Eren Osman, managing director of wealth management at Arbuthnot Latham, adding a reopening of the Strait of Hormuz was the key to calming world markets.

“The biggest challenge for us as investors today is that you’ve got one of the widest ranges of potential outcomes,” he said, adding he did not expect a prolonged conflict as he believed Trump had a “pain threshold” for market losses.

Madison Cartwright, senior geoeconomics analyst at Commonwealth Bank of Australia, said Iran’s control of the Strait of Hormuz, conduit for about a fifth of the world’s oil and liquefied natural gas, nonetheless gave it little incentive to concede, and the bank expected the war to run until at least June.

The clampdown on the Strait has sent prices for oil, gas, fertilizer, plastic and aluminum surging, along with fuel for planes and shipping. Prices for food, pharmaceuticals and petrochemical products are all set to rise.

Aluminum prices surged near four-year highs after Iranian airstrikes on two major Middle Eastern producers over the weekend. [MET/L]

That is particularly bad news for Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 1.96% and Japan’s Nikkei fell 2.79%.

“A scenario in which the Strait remains closed for an additional month would be consistent with oil prices rising towards $150 a barrel and constraints on industrial consumers of energy supply,” said Bruce Kasman, global head of economics at JPMorgan.

Fed in Focus as Payrolls Loom

Data on U.S. retail sales, manufacturing and payrolls this week will provide an update on how the economy is faring.

The energy shock, combined with pressure on fiscal budgets from higher borrowing costs and the need for more defence spending, has hit sovereign bond markets.

The yield on benchmark U.S. 10-year notes fell for the first time in three days, down 9.2 basis points to 4.348%. The 2-year note yield, which typically moves in step with Fed interest rate expectations, fell 8.2 basis points to 3.834%.

Heightened volatility in markets has tended to benefit the U.S. dollar as the world’s most liquid currency. The U.S. is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.

The dollar index, which measures the dollar against a basket of currencies including the yen and the euro, rose 0.2% to 100.51.

After more warnings of possible intervention from the Japanese authorities, the yen strengthened 0.39% to 159.69 against the dollar.

Spot gold rose 0.49% to $4,514.34 an ounce, and futures settled 0.7% higher at $4,557.50. [GOL/]

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(Reporting by Chris Prentice in New York, Iain Withers in London and Wayne Cole in Sydney; Editing by Barbara Lewis, David Gregorio and Chris Reese)