Futures Pointing To Continued Weakness On Wall Street As Crude Oil Prices Extend Surge

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to extend the downward move seen over the past few sessions.

Inflation concerns are likely to contribute to continued weakness on Wall Street amid another substantial increase by the price of crude oil.

U.S. crude oil futures are soaring by nearly 5 percent after surging by more than 3 percent on Wednesday. The price of crude oil has shot up above $100 a barrel as President Donald Trump suggested the U.S.-Iran conflict could last until after the midterm elections.

A Wall Street Journal report citing U.S. officials said top White House advisers have privately raised the prospect with Trump that the war could drag on through the remainder of his term.

The futures saw further downside following the release of the Labor Department’s report on producer price inflation in the month of August.

While the report showed producer prices increased in line with economist estimates on a monthly basis, the annual rate of price growth accelerated by more than expected.

The Labor Department said its producer price index for final demand rose by 0.4 percent in August following a revised 0.1 percent uptick in July.

Economists had expected producer prices to climb by 0.4 percent compared to the unchanged reading originally reported for the previous month.

The report also said the annual rate of growth by producer prices surged to 5.4 in August from 4.8 percent in July. The annual rate of growth was expected to accelerate to 5.3 percent.

After coming under pressure early in the session, stocks saw continued weakness throughout the trading day on Wednesday. The major averages closed lower for the third consecutive session, with the Dow falling to its lowest closing level in over a month.

The major averages ended the day off their lows of the session but still in negative territory. The Dow slid 405.41 points or 0.8 percent to 52,380.66, the Nasdaq declined 168.07 points or 0.6 percent to 26,253.34 and the S&P 500 fell 37.16 points or 0.5 percent to 7,636.36.

The continued weakness on Wall Street came amid an extended surge by the price of crude oil, with U.S. crude oil futures spiking more than 3 percent. The international benchmark brent crude futures also topped $100 a barrel for the first time since July.

The jump in crude oil prices comes as U.S. forces destroyed five Iranian crude oil carriers after the Islamic Revolutionary Guard Corps targeted a U.S. Navy warship with ballistic missiles.

U.S. Central Command said Iran has used the tankers as part of a multibillion-dollar shadow network that funds the IRGC and its regional proxies.

Iran retaliated by launching a barrage of missiles targeting U.S. military positions in Jordan, raising fears of a wider regional conflict.

The sharp increase in crude oil prices has led to renewed concerns about the outlook for inflation ahead of the Federal Reserve’s monetary policy meeting next week.

“Brent crude pushing above $100 a barrel has had a psychological effect on the market, pushing a hypothetical inflation worry gauge to ‘serious’ status and dragging down financial assets,” said Dan Coatsworth, head of markets at AJ Bell.

“The oil price has now jumped by 28% since early August,” he added. “This type of ascent could leave businesses and consumers feeling sick at the thought of sharp cost increases and potentially higher borrowing costs if central banks choose to fight inflation with interest rate hikes.”

However, traders seemed somewhat reluctant to make more significant moves ahead of the release of key inflation data.

Despite the weakness shown by the broader markets, most of the major sectors ended the day showing only modest moves.

Retail stocks showed a significant move to the downside, however, with the Dow Jones U.S. Retail Index falling by 1.5 percent.

Considerable weakness was also visible among networking stocks, as reflected by the 1.4 percent loss posted by the NYSE Arca Networking Index.

Telecom, housing and transportation stocks also saw notable weakness, while oil and gold stocks moved higher along with the prices of their associated commodities.

Commodity, Currency Markets

Crude oil futures are soaring $4.30 to $100.35 a barrel after spiking $3.02 to $96.05 a barrel on Wednesday. Meanwhile, after rising $21.70 to $4,460.70 an ounce in the previous session, gold futures are tumbling $71 to $4,389.70 an ounce.

On the currency front, the U.S. dollar is trading at 154.45 yen versus the 153.54 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1599 compared to yesterday’s $1.1632.

Asia

Asian stocks ended mostly lower on Thursday as rising oil prices and bond yields fueled concerns about inflation and the Federal Reserve’s rate path.

The U.S. dollar index was subdued in Asian trading, while gold held firm above $4,400 an ounce ahead of key U.S. PPI and CPI data due this week, which could influence the Federal Reserve’s rate decision on September 16.

Brent crude futures were little changed above $101 a barrel, hovering at their highest level since May as escalating fighting between Saudi Arabia and the Houthis in Yemen fueled concerns about further disruptions to energy supplies.

U.S. President Donald Trump said oil prices that spiked because of the Iran war are unlikely to come down until after the U.S. midterm elections.

China’s Shanghai Composite Index dropped 0.4 percent to 3,934.40 on oil-driven inflation fears. Hong Kong’s Hang Seng Index slumped 1.3 percent to 24,954.47, with internet and technology stocks leading losses.

Japanese markets eked out modest gains as technology stocks recovered from early losses. The Nikkei 225 Index edged up 0.2 percent to 65,270.95 after two straight sessions of losses.

The broader Topix Index settled 0.2 percent higher at 4,054.58, with banks and some AI-related stocks attracting buying.

Seoul stocks ended slightly lower on inflation concerns. The Kospi Index cut early losses to close 0.3 percent lower at 7,033.92.

Australian markets fell sharply, dragged down by banks and miners. The benchmark S&P/ASX 200 Index slid 1 percent to 8,819.40 in its worst session in more than three months due to soaring oil prices and the fear of higher inflation. The broader All Ordinaries Index ended down 1 percent at 9,008.30.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dropped 0.8 percent to 13,711.01, touching its lowest level since July 31.

Europe

European stocks are mostly lower on Thursday amid concerns about rising Middle East tensions and hawkish rate bets.

The European Central Bank announced its widely expected decision to raise interest rates by 25 basis points. The ECB said the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.

Brent crude futures have surged above $105 a barrel after renewed tanker attacks deepened supply fears.

U.S. Treasury yields are also seeing further upside after surging on Wednesday as the U.S. Treasury lifted the size of a long-dated buyback operation, which investors deemed insufficient.

In economic news, Germany’s consumer price inflation accelerated to a four-month high in August, in line with the initial estimate, driven by higher energy prices, Destatis reported earlier today.

Consumer prices rose 2.9 percent year-on-year in August after a 2.8 percent gain in July. A similar higher rate was last seen in April.

The EU harmonized inflation also rose to a four-month high of 2.9 percent from 2.8 percent in the previous month, as estimated.

The U.K.’s FTSE 100 Index is down by 0.6 percent, the German DAX Index is down by 0.4 percent and the French CAC 40 Index is down by 0.2 percent.

In corporate news, German sports car manufacturer Porsche has risen after completing the sale of its stakes in Bugatti Rimac and Rimac Group.

British electricals retailer Currys has moved to the downside. The company backed its annul view after reporting a 7 percent rise in like-for-like sales for the 17 weeks to August 29.

U.S. Economic News

The Labor Department released a report on Thursday unexpectedly showing a slight dip in first-time claims for U.S. unemployment benefits in the week ended September 5th.

The report said initial jobless claims edged down to 206,000, a decrease of 1,000 from the previous week’s revised level of 207,000.

Economists had expected jobless claims to inch up to 208,000 from the 206,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also slipped to 206,000, a decrease of 1,500 from the previous week’s revised average of 207,500.

Producer prices in the U.S. increased in line with economist estimates in the month of August, the Labor Department revealed in a report released on Thursday.

The Labor Department said its producer price index for final demand rose by 0.4 percent in August following a revised 0.1 percent uptick in July.

Economists had expected producer prices to climb by 0.4 percent compared to the unchanged reading originally reported for the previous month.

The report also said the annual rate of growth by producer prices surged to 5.4 in August from 4.8 percent in July. The annual rate of growth was expected to accelerate to 5.3 percent.

At 10 am ET, the National Association of Realtors is due to release its report on existing home sales in the month of August. Existing home sales are expected to tumble by 2.2 percent to an annual rate of 3.97 million in August from an annual rate of 4.06 million in July.

The Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

At 12 pm ET, the Energy Information Administration is due to release its report on crude oil inventories in the week ended September 4th.

The Treasury Department is scheduled to announce the results of this month’s auction of $22 billion worth of thirty-year bonds at 1 pm ET.