S&P 500 futures slipped 0.1% early Wednesday after the index dropped 0.7% Tuesday, as fresh U.S.-Iran strikes near the Strait of Hormuz pushed oil prices higher and drove Treasury yields toward three-year highs. The bond-market rout deepened investor unease just as traders raised their bets on a Federal Reserve rate hike this month.
Wall Street pulls back as yields climb
The Dow Jones Industrial Average declined 0.8% Tuesday, undercutting its 50-day moving average to a one-month low. The S&P 500 fell 0.7%, slipping below its 21-day moving average, while the Nasdaq composite gave up 1% and the small-cap Russell 2000 retreated 1.2%.
Futures pointed to a mixed open Wednesday. Dow Jones futures rose 0.1%, while S&P 500 futures lost 0.1% and Nasdaq-100 futures fell 0.3%. Overseas, the pan-European STOXX 600 fell 0.3%, South Korea's KOSPI dropped almost 4%, and Japan's Nikkei 225 fell 2.9%.
Oil surges on renewed U.S.-Iran strikes
The U.S. struck Iranian military targets near the Strait of Hormuz on Tuesday, and Tehran said it had targeted U.S. assets across the region, marking the most significant exchange of fire since July. U.S. crude oil prices jumped 5.2% to $90.22 a barrel, the highest settlement since July 23, while Brent crude was last up 0.6% at $95.18 a barrel.
Energy Secretary Chris Wright told CNBC that more than 17 million barrels of oil were shipping through the Strait of Hormuz on Monday, and crude prices eased from their overnight highs before Wednesday's open.
Bond rout deepens as Fed bets rise
The 10-year Treasury yield rose 4 basis points to 4.795% Tuesday, its highest settlement in nearly three years, and later approached a three-year high of 4.8182%. Japan's 10-year government bond yield held above 3% for a second straight session after hitting a three-decade high earlier this week.
According to UBS multi-asset strategist Kiran Ganesh: "Stocks had been quite resilient to the increase in yields". Traders now assign a roughly two-in-three chance of a 25-basis-point Fed rate hike this month, up from 37% a week ago, according to CME Group's FedWatch tool, with the Fed's meeting set for September 16.
Investors are now watching ADP private payrolls data due Wednesday, Friday's nonfarm payrolls report and the September 11 consumer inflation reading for clues on whether the economy still justifies an interest rate hike.
Sources: Investor's Business Daily, Reuters
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