U.S. stocks were poised to open lower on Thursday, threatening to reverse part of the previous session’s modest rebound as a sharp rise in crude oil prices renewed concerns about the economic consequences of the continuing conflict in the Middle East.
U.S. crude futures surged more than 3% to their highest level in almost a month after President Donald Trump intensified pressure on Iran, raising fears that the confrontation could continue to disrupt global energy supplies and fuel inflation.
In a Truth Social post, Trump announced he was launching “economic warfare” against Iran, describing the initiative as the “most crushing economic operation ever taken against any country.”
Trump also threatened “tremendous economic consequences” for any country that “allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran.”
Iran responds as oil prices surge
Iranian Foreign Minister Abbas Araghchi responded by describing the proposed “Economic D-Day” as a “diversion from America’s own crisis: unprecedented debt & surging interest costs.”
“Doubling down on failed policies will only bring further defeat—and enmity of Iranians,” Araghchi said in a post on X. “US economic terrorism threatens global economy and sovereignty worldwide.”
The escalation in rhetoric contributed to the latest surge in crude prices, with investors increasingly concerned that there is no immediate resolution to the U.S.-Iran conflict.
Higher oil prices also put renewed upward pressure on Treasury yields, partially reversing the sharp decline seen on Wednesday after the U.S. Treasury announced an expansion of its long-term debt buyback programme.
Walmart slide adds pressure to U.S. futures
Walmart (NYSE:WMT) was another potential drag on Wall Street, with shares dropping more than 7% in premarket trading.
The retailer came under pressure after reporting weaker-than-expected comparable sales growth for the second quarter and issuing guidance that disappointed investors.
The decline comes after U.S. equities staged a modest recovery on Wednesday following three consecutive sessions of losses.
The Dow Jones Industrial Average gained 119.65 points, or 0.2%, to finish at 53,463.05. The Nasdaq advanced 41.38 points, or 0.2%, to 26,331.09, while the S&P 500 added 16.22 points, or 0.2%, to close at 7,707.98.
Treasury buybacks send long-term yields lower
Wednesday’s equity gains were supported by a sizeable retreat in bond yields, with the 30-year Treasury yield moving further away from its highest level in almost two decades.
The decline followed the Treasury Department’s announcement that it would at least double the size of liquidity-support buyback operations for longer-dated nominal coupon securities from September 9.
“This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants,” the Treasury said in a statement.
The move initially provided relief to financial markets, although renewed pressure from rising oil prices subsequently complicated the outlook for yields and inflation.
Fed minutes reveal support for higher interest rates
Stocks surrendered part of Wednesday’s early gains after minutes from the Federal Reserve’s latest policy meeting showed that many officials believed higher interest rates could be required unless inflation continued to decline.
Some policymakers also questioned whether financial conditions were sufficiently restrictive to return inflation sustainably towards the Fed’s 2% target.
Middle East tensions featured prominently in the discussion, with officials highlighting the potential inflationary consequences of a prolonged conflict.
“[Many] participants remarked that a protracted conflict could prolong supply chain challenges and could put upward pressures on inflation,” the Fed said.
At the July 28-29 meeting, policymakers voted 9-3 to leave rates unchanged. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan instead favoured a quarter-point increase.
Officials supporting a rate hike argued that acting sooner could reduce the risk of requiring a more aggressive and potentially more costly tightening cycle later.
Gold and biotech stocks outperform
Wednesday’s session also produced significant divergence between sectors.
Gold stocks rallied alongside the precious metal, sending the NYSE Arca Gold Bugs Index up 9.3% to its highest closing level in three months.
Biotechnology shares also performed strongly, with the NYSE Arca Biotechnology Index jumping 4.2%. Pharmaceutical, healthcare and housing stocks recorded notable gains as well.
By contrast, computer hardware, banking and semiconductor shares came under substantial selling pressure.
Thursday’s market direction is now being shaped by the competing forces of Treasury efforts to stabilise longer-term debt markets, a more hawkish Federal Reserve backdrop and renewed inflation concerns as crude oil prices climb.