Global equity futures fell sharply on Tuesday as renewed Middle East hostilities pushed crude oil prices near the $100-a-barrel mark, while Treasury yields remained elevated ahead of crucial U.S. inflation data and upcoming central bank policy decisions.
Energy Markets Surge Amid Middle East Hostilities
Renewed military activity across West Asia quickly translated into fresh volatility for global energy markets as trading resumed following the Labor Day holiday. Shipping traffic through the Strait of Hormuz slowed amid threats of retaliation, while renewed military strikes heightened concerns over disruptions to global energy supplies.
Brent crude futures climbed toward the $100 threshold, approaching that psychological mark for the third time this year. According to market reporting on energy pricing, Brent futures rose 1.64% to $98.59 a barrel in one reading, while separate reports captured Brent up 2.3% at $99.22 and West Texas Intermediate crude gained 3.3% to $94.54.
Multiple media reports from the Financial Times and Bloomberg also suggested that Saudi Aramco’s facilities in Jazan came under attack yet again, although there was no independent confirmation of the same, nor any potential estimate of the damage caused or who was behind the attack. Yemen’s Tehran-backed Houthis attacked energy facilities and cities in Saudi Arabia, while Israel carried out strikes in southern Lebanon. Amid these developments, Goldman Sachs warned on Monday that crude oil prices could head back to the $120 a barrel mark if shipping attacks in the Strait of Hormuz broaden and intensify. In fact, hedge funds have turned the most bullish on Brent crude since May, while their net long positions on the US crude variant (WTI) are the highest since June. Despite Iran suggesting that a deal with Oman to manage the Strait of Hormuz is in its final stages, crude prices continued to remain at elevated levels. Energy stocks benefited from the move, with Marathon Petroleum and Occidental Petroleum gaining in trading.
Wall Street Reacts to Hotter Labor Data and Bond Yields
The macroeconomic backdrop grew increasingly complex following a stronger-than-expected August employment report. The U.S. economy added 162,000 jobs during the month, outpacing forecasts of about 55,000 while the unemployment rate held steady at 4.1%.
That resilient labor market reading immediately shifted expectations for monetary policy. Money markets assigned about a 60% probability of a 25-basis-point interest rate increase at the Federal Reserve’s upcoming meeting scheduled for September 15–16. Concurrently, benchmark borrowing costs climbed, with the 10-year Treasury yield hovering near the 4.8% mark and reaching levels not seen since November 2023. The benchmark 10-year Treasury yield rose 0.42 basis points to 4.7882% on Tuesday, while the two-year yield also climbed to levels not seen since January 2025. Markets are currently pricing in about a 58.4% probability of a rate hike at the Federal Reserve’s September meeting, according to the CME FedWatch tool.
Ed Yardeni, president of Yardeni Research, said, A run of central bank meetings over the coming weeks will test whether equity composure holds.
He added, Bond yields are also rising worldwide. The question is whether that reflects better-than-expected economic growth, higher-than-expected inflation, and/or looming fiscal debt crises.
Equities Slip as Bond Markets Test Investor Tolerance
Equities absorbed the brunt of the macroeconomic pressure as cash market trading resumed. The Dow Jones Industrial Average opened 471 points lower, while broader indexes faced sustained downward pressure. The Dow Jones and small-cap Russell 2000 fell further below key support, while the S&P 500 slipped 0.16% and the Nasdaq Composite declined 0.09%. Futures on Wall Street resumed trading after the Labor Day holiday on a negative note as markets needed to digest cues from over the weekend and from Monday, which saw further reported attacks in West Asia, with Dow futures down over 300 points and S&P 500 and Nasdaq futures down 20 points each. U.S. markets had previously ended on a negative note on Friday after the better-than-expected jobs report for August, which led to the Dow Jones ending 270 points lower, while the S&P 500 and Nasdaq had ended near the flat line.
Financial institutions have issued stark warnings regarding how high bond yields could break equity valuations. Analysts at Societe Generale cautioned that a move in the 10-year yield toward 5.5% would severely strain equity investors and trigger a negative market reaction, echoing prior warnings from JPMorgan and Barclays regarding the 5% threshold. Gold prices continue to hover around the $4,400 an ounce mark, and despite the correction, Chinese Central Bank continued to buy the yellow metal for the 22nd month in a row, increasing its Gold reserves by 6,50,000 ounces in August, according to official data.
Inflation Reports and Central Bank Decisions Loom
Investors are now positioning themselves for the final economic data points ahead of the Federal Reserve’s policy announcement. No significant events are lined up for the rest of the week until Thursday, when the Producer Price Index is scheduled for release, followed by the Consumer Price Index print on Friday, the last one before the Fed’s interest rate decision next week.
Market participants and analysts emphasize that these inflation readings will dictate whether the central bank moves forward with a rate hike or maintains its current stance if price pressures show signs of sustained moderation, following comments from Fed Governor Christopher Waller indicating that he could support keeping rates unchanged if inflation pressures continued to ease.
