A look at the day ahead in European and global markets from Gregor Stuart Hunter

The surge in energy prices as war engulfs the Middle East is top of mind for central bankers. Deciding what to do about it is proving more complicated.

On Tuesday, the Reserve Bank of Australia became the first major central bank to hike since the start of the Iran conflict, lifting benchmark interest rates by 25 basis points to 4.1% and warning that sharply higher fuel prices will add to inflation if they are sustained. But an unexpectedly close vote that saw four dissents sent the Aussie dollar skidding afterwards.

The debate is a foretaste of what may be ahead for rate-setting committees this week at the Federal Reserve, European Central Bank, Bank of England and Bank of Japan, which will assess the global economic impact of the energy shock, though all are expected to remain on hold. The Bank for International Settlements has urged policymakers not to rush reactions to the energy price spike, calling it a textbook case of when to "look through" a supply shock.

Elsewhere, Bank of Japan Governor Kazuo Ueda said on Tuesday that underlying inflation is accelerating toward the bank's 2% target. The yen JPY= weakened 0.1% to 159.25 per dollar, shrugging off verbal warnings from Japanese authorities. Analysts expect the bar for an intervention to be higher because of rising oil prices.

The Iran war continued to rumble on with no sign of abating, with Israel and Iran trading airstrikes. U.S. President Donald Trump accused some Western allies of ingratitude after several countries rebuffed his demand to send warships to escort oil tankers through the Strait of Hormuz, as Iran continued to target oil facilities in the Gulf. Brent crude LCOc1 was up 2.9% at $103.11 a barrel.

And it's not just energy markets facing supply disruptions: South Korea's SK Group Chairman Chey Tae-won said on Monday the global chip wafer shortage is likely to persist until 2030, as demand driven by artificial intelligence continues to outpace supply. Meanwhile, the biggest workers' union at South Korea's Samsung Electronics 005930.KS has threatened to disrupt chip production as members vote on a plan to strike in May, its leader told Reuters.

Whether that disrupts the $1 trillion revenue opportunity for AI chips through 2027 forecast by Nvidia NVDA.O CEO Jensen Huang remains to be seen.

In the meantime, stock markets are struggling to find new direction, with volatility remaining elevated. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.6%, while Japan's Nikkei 225 .N225 rose 0.5%. S&P 500 e-mini futures EScv1 were down 0.2%.

In early European trades, pan-region futures STXEc1 and German DAX futures FDXc1 were flat, and FTSE futures FFIc1 were up 0.1%.

Key developments that could influence markets on Tuesday:

Earnings:

Tencent Music Entertainment 1698.HK, Lululemon Athletica LULU.O, DocuSign DOCU.O and Oklo OKLO.N

Economic events:

Euro zone: ZEW survey expectations, economic sentiment and current conditions for March

Debt auctions:

UK: 5-year government debt

(Reporting by Gregor Stuart Hunter; Editing by Jamie Freed)

((gregor.hunter@thomsonreuters.com))