Stock futures lower as Middle East tensions continue

by Joanna Ossinger and Andre Janse van Vuuren

US equity futures fell and oil rose after President Donald Trump called for the evacuation of Tehran, in remarks that contrasted with earlier optimism that Israel-Iran tensions wouldn’t escalate into a wider conflict.

S&P 500 contracts declined 0.5% following Trump’s comments in a social media post from a Group of Seven leaders’ summit in Alberta. It wasn’t clear what he was referring to but hours earlier, Trump had said Iran wanted to make a deal. The US President cut short his G-7 visit and said his return to Washington “has nothing to do with” a ceasefire.

Brent crude traded 1.3% higher after swinging between gains and losses. Gold, the dollar and US Treasuries were little changed.

Shifts in market sentiment continued on Tuesday as traders gauged the risks of an escalation in hostilities and broader involvement. Investors’ focus is especially on oil prices, with a commodity that had hovered near pandemic-era lows now emerging as an unexpected source of inflation.

 Prices could soar if Tehran attempts to disrupt shipments through the Strait of Hormuz, a gateway for about a fifth of the world’s daily output.

“The degree of uncertainty is very high,” said Laurent Lamagnere, head of development at AlphaValue. “So far, the market hasn’t captured an escalation of the conflict. Now we’re sailing in the fog.”

Trump earlier said Iran wanted to talk about de-escalating the conflict with Israel even as the two sides continued to attack each another. Asked if the US would get more involved militarily, the US leader said he didn’t want to discuss it.

At the G-7 gathering in Alberta, Canada, Trump and Japanese Prime Minister Shigeru Ishiba failed to reach an agreement on a trade package. However, Trump did agree on a deal with UK Prime Minister Keir Starmer to implement trading terms disclosed last month to slash US tariffs on key British exports and raise UK quotas on certain American agricultural products.

The Bank of Japan left its benchmark rate unchanged, as expected by economists, and decided to taper its bond purchases at a slower pace next year in a sign of caution following heightened market volatility. The yen erased losses after the decision and long-end Japanese government bond yields were modestly higher.

Wall Street will also focus on the Federal Reserve decision Wednesday, with policymakers signaling an extended hold on interest rates. Investors are looking to Chair Jerome Powell for clues on what might eventually prompt the central bank to make a move, and when.

“We think the Fed isn’t impressed by four straight soft inflation reports, and will lean on internal forecasts that point to an eventual inflation surge from tariffs,” Bloomberg Economics’ Anna Wong and Chris G. Collins wrote. 

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.7% as of 9:10 a.m. London time
• S&P 500 futures fell 0.5%
• Nasdaq 100 futures fell 0.5%
• Futures on the Dow Jones Industrial Average fell 0.7%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1553
• The Japanese yen was little changed at 144.65 per dollar
• The offshore yuan was little changed at 7.1834 per dollar
• The British pound fell 0.1% to $1.3562

Cryptocurrencies

• Bitcoin fell 1.9% to $106,733.78
• Ether fell 3.2% to $2,585.31

Bonds

• The yield on 10-year Treasuries was little changed at 4.44%
• Germany’s 10-year yield advanced two basis points to 2.55%
• Britain’s 10-year yield advanced three basis points to 4.56%

Commodities

• Brent crude rose 1.3% to $74.15 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

Copyright Bloomberg News