Escalating hostilities in the Middle East led to a significant surge in oil prices, with Brent crude approaching $100 a barrel. This rise in energy costs fueled concerns about higher interest rates, particularly just days before crucial inflation data is expected. Money markets are now pricing in over a 50% chance of a Federal Reserve rate increase this month.
The S&P 500 experienced a second consecutive session of declines, while the Dow Jones Industrial Average fell by 1.2% and the Nasdaq 100 dropped 0.1%. US stock futures remained largely unchanged after a public holiday. This downturn occurred despite a rally in the chipmaking sector, with Asian chip stocks poised for gains due to sustained interest in artificial intelligence.
Economists project the Consumer Price Index (CPI) to have risen by 0.4% in August, an acceleration from the previous month, largely attributed to increased gasoline costs. However, the core CPI, excluding volatile energy and food components, is predicted to show a more moderate rise of 0.2%. Analysts from Bespoke Investment Group warned that continued increases in energy prices could significantly impact the market, potentially overshadowing even a tame inflation report if crude oil prices remain high. Chris Larkin from E*Trade from Morgan Stanley also noted that geopolitical tensions and rising oil prices would likely keep the market's focus on inflation.
