U.S. stock futures pointed to a weaker opening on Tuesday as Wall Street prepared to resume trading following the Labor Day weekend, with escalating tensions in the Middle East driving oil prices higher and investors reassessing the outlook for Federal Reserve interest rates.
U.S. crude oil futures jumped nearly 2% after the United States struck three Iranian crude carriers over the weekend, following Iranian ballistic missile launches towards two U.S. Navy warships operating in the region.
Iran has threatened retaliation against further U.S. attacks on its assets, while Saudi-led coalition forces have pledged a strong response following a series of attacks by Houthi forces.
Tehran also said an agreement with Oman over arrangements for shipping through the Strait of Hormuz was close, although concerns over disruption to the strategically important waterway continued to support energy prices.
U.S. Inflation Data Takes Centre Stage
Trading could remain relatively cautious ahead of key U.S. inflation figures due later this week.
Consumer and producer price data are expected to provide important signals about the direction of monetary policy before the Federal Reserve’s next meeting later this month.
Interest-rate expectations shifted significantly following Friday’s stronger-than-expected U.S. employment report.
Nonfarm payrolls increased by 162,000 in August, substantially exceeding expectations for a gain of 55,000. July’s figure was also revised higher to an increase of 21,000 jobs from the previously reported decline of 23,000.
Treasury yields climbed following the report as investors increased bets that the strength of the labour market could give the Fed greater scope to raise borrowing costs in response to persistent inflation.
According to CME Group’s FedWatch Tool, markets were pricing a 58.4% probability of a quarter-point rate increase, recovering from below 50% on Thursday.
Charlie Ripley, Senior Investment Strategist at Allianz Investment Management, said: “While today’s labor report shifted September hike expectations sharply, the outcome is not a sure bet and additional signals that confirm inflation has peaked will make the Fed’s decision to hike even tougher at the September meeting.”
Dow and S&P 500 End Friday Lower
U.S. equities finished mostly lower on Friday, giving back some of the gains recorded during the previous two sessions.
The Dow Jones Industrial Average dropped 271.86 points, or 0.5%, to 53,414.25. The Nasdaq Composite declined 77.07 points, or 0.3%, to 26,506.99, while the S&P 500 lost 29.11 points, or 0.4%, to 7,718.60.
For the week, performance was mixed. The Dow slipped 0.3%, while the S&P 500 gained 0.1% and the Nasdaq advanced 0.4%.
Software and Gold Stocks Weaken as Semiconductors Rally
Sector performance was mixed during Friday’s session.
Software shares retreated sharply following Thursday’s rally, sending the Dow Jones U.S. Software Index down 2.2%.
Gold miners also came under pressure as bullion prices declined, with the NYSE Arca Gold Bugs Index falling 1.8%. Pharmaceutical and biotechnology stocks recorded notable losses as well.
Semiconductor shares moved sharply in the opposite direction, driving the Philadelphia Semiconductor Index 3.4% higher. Computer hardware and airline stocks also performed strongly, helping limit losses across the broader market.
With oil prices climbing and inflation data approaching, investors are likely to remain focused on whether renewed energy pressures and resilient employment strengthen the case for another Federal Reserve rate increase.