Wall Street is headed for a weak opening, with Dow Jones futures down nearly 500 points (-1%), S&P 500 futures down about 0.6%, and Nasdaq 100 futures down about 0.8%, while oil jumps nearly 5%: Brent to $105.33 (+5.1%) and WTI to $92.52 (+4.8%). This comes amid continued rising Treasury yields and news of Pentagon preparations for a possible resumption of hostilities, ahead of the start of US trading at 4:30 PM Saudi time.
Pre-opening figures
Dow Jones (contracts): Around -510 points (-1%), and if that happens, the index could open near 50,670 points compared to Wednesday's close of 51,179.87.
S&P 500 (contracts): about -0.6%, after closing Wednesday at 7,801.77 (-0.22%).
Nasdaq 100 (contracts): about -0.8%, after the Nasdaq Composite closed Wednesday at 27,538.69.
Brent: $105.33 (+5.1%), up about 3% from Friday's settlement ($102.25).
WTI: $92.52 (+4.8%), up about 1.6% from Friday's settlement ($91.11).
The difference: about $12.8 between Brent and WTI.
Yields: The 10-year yield was at 5.331% earlier this morning after yesterday's peak of 5.365%, the highest since April 2002.
Why are contracts declining?
Oil and war. Axios reported that the Pentagon directed Central Command to finalize preparations for a possible resumption of major combat operations in Iran, possibly before the November 3 election, though no final decision has been made. Benzinga noted that potential targets include nuclear and energy facilities. Trump had previously hinted that strikes would not resume until after the election, according to The National, making the report surprising. This coincided with an attack on a tanker north of Qatar, and according to CNBC, Middle East concerns are keeping markets on edge.
Yields. Oil and yields are rising together: Higher energy prices are fueling inflation expectations, and consumer expectations for the year have jumped to 3.9%, bolstering bets on an interest rate hike. Waller says he expects another increase if the data comes in as anticipated, with the probability of a December rate hike at around 81%. Yesterday's Fed minutes were hawkish.
Stocks under pressure. Asian markets fell today on interest rate and inflation concerns, with Saudi Arabia's Tadawul All Share Index (TASI) dropping about 1.57% to 10,376.46, reflecting the spread of anxiety to Gulf markets. UBS, according to CNBC, advised investors to remain in stocks despite the volatility.
What are investors watching today?
3:30 PM: Weekly unemployment claims, the first major data release after the Fed minutes. If it comes in strong, it could solidify bets on a rate hike.
4:30 PM: US markets open, with attention focused on the technology sector, which led the record gains this week, and on energy and defense, which are benefiting from high oil prices.
8:00 PM: Auction of 30-year bonds ($22 billion), after their yield touched 5.7% yesterday.
Post-opening remarks: Federal Reserve statements, and any news about the Pentagon and Hormuz.
What determines the direction?
Oil above 105: If Brent stays above $105, it could keep yields and inflation expectations high and put pressure on growth stocks.
A return above 5.365%: Breaking yesterday's peak would increase pressure on valuations, while a decline towards 5.2% would lessen the shock.
S&P 500 near the top: The index is moving less than 1% away from its record high (7,818.93 on Tuesday), so a deeper pullback could test buyers' confidence.
October 14 inflation: The Fed's next stop before its decision on October 28.
Wall Street opens today under triple pressure: oil prices jumping nearly 5% on the threat of war, yields remaining unsettled, and the Federal Reserve hinting at another rate hike. While futures contracts don't guarantee a successful opening and could shift with the release of unemployment data, the signal is clear: the market is repriceing the risks of both inflation and war after a week of record highs.
