U.S. stock futures declined on Monday after military clashes between the United States and Iran pushed oil prices higher, raising inflation concerns at a time when interest rate expectations are becoming increasingly hawkish.
The losses could set the tone for trading at the beginning of September, which is historically a weak month for equities, while pressure may increase ahead of the Federal Reserve meeting later this month.
Traders now see roughly a 60% probability of an interest rate hike at the September meeting, according to CME FedWatch, compared with 41.4% a week earlier. The shift followed comments from Federal Reserve Chair Kevin Warsh, who said policymakers may need to raise interest rates if inflation fails to move back toward the central bank’s 2% target.
David Chao, global market strategist for Asia Pacific at Invesco, said Warsh delivered a much more hawkish message than investors had expected and made it clear that monetary policy easing is unlikely in the near term.
Warsh made the remarks on Friday during his first appearance at the Jackson Hole symposium, following several weeks of mixed economic data.
An inflation report released earlier in the month showed relatively contained price pressures, but the Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation measure, came in above expectations.
This uncertainty is increasing the importance of the U.S. employment report due on September 4, as investors look for further clues about the direction of monetary policy. Warsh said recent reports had not shown meaningful improvement in the underlying trends of the labor market.
Kyle Rodda, senior financial market analyst at Capital.com, said market participants are watching Friday’s U.S. nonfarm payrolls report with greater concern, with the data likely to become the key event of the trading week amid heightened uncertainty around monetary policy.
Dow Jones futures fell about 94 points, or 0.18%, while S&P 500 futures declined around 13.25 points, or 0.17%. Nasdaq 100 futures slipped about 28.75 points, equivalent to 0.1%.
In premarket trading, Nvidia shares rose around 0.64%, making the stock the only gainer among the Magnificent Seven. Semiconductor stocks also posted gains, with Intel, Lam Research and Texas Instruments rising about 0.8%, 1% and 0.5%, respectively.
Chao said he continued to favor sectors linked to structural growth themes such as artificial intelligence and digital infrastructure.
Energy stocks advanced as Brent crude climbed around 6% after military strikes between the United States and Iran resumed in the Middle East, while disruptions in the Strait of Hormuz affected oil shipments.
Halliburton and Valero Energy shares gained about 2.29% and 1.91%, respectively, benefiting from higher energy prices.
In the cryptocurrency market, Bitcoin remained above $78,000, while shares of most crypto related companies advanced. Coinbase, Strategy and CleanSpark gained between 0.78% and 1.92%.
GameStop shares fell around 2% after the video game retailer said it expects second quarter net sales to decline as it moves forward with plans to close stores and exit its operations in France.
In U.S. markets, the US 30 index declined around 0.09%, while the US 500 fell 0.14%. Dow Jones slipped about 0.02%, S&P 500 declined 0.25% and Nasdaq dropped 0.52%. Meanwhile, the S&P 500 Volatility Index, known as the VIX, rose 5.34%.
Market moves come amid growing concern that higher oil prices caused by geopolitical tensions could revive inflationary pressures, potentially forcing the Federal Reserve to keep interest rates elevated for longer or tighten monetary policy further if price pressures continue to increase.
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