Stock futures fluctuated on Friday as traders awaited quarterly earnings reports from some of the biggest banks.
Oil prices jumped after a U.S.-led coalition launched more than a dozen strikes on Houthi rebel targets in Yemen following their attacks on ships in the Red Sea.
MUFG said that prospects of escalating Middle East tensions after the airstrikes risk stoking inflation and will dim prospects of interest-rate cuts.
A rate cut in March looks increasingly unlikely, it said. “It seems a difficult backdrop for the [Federal Reserve] to shift its rhetoric in order to provide guidance on a possible rate cut in March.”
Further escalation would extend the time that ships are having to avoid the Red Sea, raising concerns over supply disruption and higher energy prices feeding through into inflation, MUFG added.