Surging Crude Oil Prices May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks poised to extend the pullback seen during last Friday’s session.

The downward momentum on Wall Street comes amid concerns about a re-escalation of the military conflict in the Middle East following a period of relative calm.

Over the weekend, the U.S. and Iran traded strikes for the first time in over a month, contributing to a surge in crude oil prices.

U.S. crude oil futures are spiking by more than 3 percent after the U.S. attacked two Iranian rocket launchers on Larak Island and Iran retaliated by launching an attack on two U.S. bases in Jordan.

The sharp increase in crude oil prices may contribute to renewed worries about the outlook for inflation ahead of next month’s Federal Reserve meeting.

According to CME Group’s FedWatch Tool, the chances the central bank will raise interest rates by a quarter point have jumped to 63.9 percent following Fed Chairman Kevin Warsh’s hawkish remarks last Friday.

After seeing considerable volatility early in the session, stocks moved mostly lower over the course of the trading day on Friday. The major averages all moved to the downside on the day, partly offsetting the strength seen in the previous session.

The Nasdaq slid 138.93 points or 0.5 percent to 26,402.42 and the S&P 500 fell 19.23 points or 0.3 percent to 7,711.76. The narrower Dow posted a more modest loss, edging down 9.45 points or less than a tenth of a percent to 53,559.99.

Despite the pullback on the day, the major averages all moved higher for the week. The Nasdaq advanced by 0.9 percent, while the Dow and the S&P 500 both climbed by 0.5 percent.

The weakness that emerged on Wall Street came as Federal Reserve Chairman Kevin Warsh’s first speech at the Jackson Hole economic symposium was seen as having a hawkish tilt.

As widely expected, Warsh began his remarks by highlighting his aversion to providing “forward guidance,” noting his “long-time discomfort with early pronouncements of future policy decisions.”

Warsh argued that oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray.

However, Warsh’s comments about the current state of the economy may have provided some insight into his views about the outlook for interest rates.

The Fed chief noted people may well be concerned about possible future labor disruptions but said he believes labor markets are currently consistent with full employment.

Instead, Warsh said the numbers are more concerning with regard to the price-stability side of the Fed’s dual mandate, with the annual rate of growth by the central bank’s preferred measure of inflation standing at 3.7 percent

“None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target,” Warsh said. “So the Fed’s predominant focus right now should be on prices.”

He added, “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job . . . our mandate . . . and our charge to keep.”

Following Warsh’s remarks, the chances the Fed will raise interest rates by a quarter point next month have jumped to 63.9 percent, according to CME Group’s FedWatch Tool.

Gold stocks moved sharply lower along with the price of the precious metal, resulting in a 3.9 percent nosedive by the NYSE Arca Gold Bugs Index.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 3.5 percent plunge by the Philadelphia Semiconductor Index.

Shares of Nvidia (NVDA) saw a significant pullback, with the AI giant tumbling by 4.6 percent after spiking by 8.7 percent on Thursday.

Networking, biotechnology and computer hardware stocks also saw considerable weakness, while retail stocks showed a strong move to the upside.

Shares of Gap (GPS) soared by 12.9 percent after the clothing and accessories retailer reported better than expected second quarter earnings and announced the appointment of Michael Francis as President and Chief Executive Officer of Old Navy.

Commodity, Currency Markets

Crude oil futures are soaring $2.88 to $86.28 a barrel after slipping $0.13 to $83.40 a barrel last Friday. Meanwhile, after plunging $134.10 to $4,529.90 an ounce in the previous session, gold futures are falling $33 to $4,496.90 an ounce.

On the currency front, the U.S. dollar is trading at 159.82 yen versus the 160.04 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1593 compared to last Friday’s $1.1584.

Asia

Asian stocks turned in a mixed performance on Monday as renewed Middle East tensions and Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks in the face of rising inflation risks sapped investors’ appetite for risk.

Iran launched attacks on American forces stationed in Jordan after U.S. forces targeted two Iranian rocket launchers on Larak Island.

The escalation in tensions between Washington and Tehran sent Brent prices surging toward $90 a barrel, reviving inflation and interest-rate concerns.

The dollar held near a two-week high, while bond yields ticked lower after U.S. Treasury Secretary Scott Bessent dismissed concerns over rising U.S. debt and instability in the Treasury market.

Gold slipped 0.3 percent to 4,443 an ounce after tumbling about 3 percent on Friday following Warsh’s hawkish speech.

China’s Shanghai Composite Index closed 0.9 percent higher at 3,986.30, reversing early losses as new mortgage rules raised funding concerns and official data showed factory activity in China contracted in August for a second straight month despite an uptick in export demand.

BYD shares slumped 4.5 percent after the electric-vehicle maker reported a 20.5 percent fall in first-half net profit. Hong Kong’s Hang Seng Index finished marginally lower at 25,566.99, with tech, gold and property stocks pacing the decliners.

Japanese markets cut early steep losses to end little changed as the yen stayed close to a one-month low on concerns about Japan’s fiscal position. Meanwhile, in an interview on Sunday, U.S. Treasury Secretary Scott Bessent said recent yen moves were “pretty well contained.”

The Nikkei 225 Index ended 0.1 percent lower at 66,311.93, while the broader Topix Index settled 0.2 percent higher at 4,156.29. While Advantest led decliners with a 4.5 percent drop, Kioxia Holdings surged 4.4 percent and Kansai Electric Power soared 7.6 percent.

Seoul stocks reversed course to end higher, bolstered by gains in tech heavyweights, with Samsung Electronics rising 1.2 percent and SK Hynix adding 1.3 percent. The Kospi Index rose 0.5 percent to 6,820.02.

Australian markets ended slightly lower as mining stocks fell, offsetting gains in the banking sector. The benchmark S&P/ASX 200 Index dipped 0.2 percent to 9,076 amid expectations that the Reserve Bank of Australia may raise rates at its next policy meeting. The broader All Ordinaries Index closed down 0.3 percent at 9,271.40.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index rallied 1.1 percent to 13,917.30, snapping a two-session losing streak ahead of the RBNZ rate decision due on Wednesday.

Europe

European stocks are subdued on Monday amid escalating tensions between Washington and Tehran around the Strait of Hormuz.

The Iranian Army launched dozens of destructive drones at the locations of U.S. helicopters and forces stationed at the AI Minhad airbase in the United Arab Emirates in retaliation for the martyrdom of the personnel of the Islamic Revolution Guards Corps and innocent Iranian compatriots on Larak Island.

The pan-European STOXX 600 Index is down by 0.1 percent but is on track for a fifth straight monthly gain.

The German DAX Index is down by 0.7 percent after preliminary data showed inflation rose in four key German states in August.

France’s CAC 40 Index is marginally higher, while London markets are closed for a bank holiday.

TotalEnergies has rallied as oil prices traded nearly 2 percent higher on fears of supply disruptions through the Strait of Hormuz.

Bakkafrost has plunged after the salmon farmer missed analyst forecasts on both Q2 earnings and revenue.

U.S. Economic News

No major U.S. economic data is scheduled to be released today.