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Oil prices climbed to six-week highs today, with Brent up 1.7% to $99.49 and WTI gaining 2.8% to $94.60, as U.S.-Iran tensions escalated. Higher energy prices are raising concerns about renewed inflationary pressure and pushing Treasury yields higher, with the 10-year yield recently reaching its highest level since November 2023.
In the U.S., stock futures opened lower Tuesday as investors focused on the ongoing U.S.-Iran conflict and renewed U.S.-Canada trade tensions. Dow futures fell 0.9%, while S&P 500 futures slipped 0.3% and Nasdaq-100 futures gained 0.2%. Asian markets were mixed, with South Korea’s Kospi and Japan’s Nikkei rising, while Hong Kong declined.
Markets are also focused on next week’s Federal Reserve meeting, with traders pricing in around a 60% chance of a 25-basis-point rate hike. Upcoming wholesale and consumer inflation data could significantly alter those expectations.
Gold is recovering modestly after two consecutive sessions of losses, supported by a pullback in the US Dollar and a stronger Japanese Yen. However, hawkish Fed expectations and geopolitical tensions are limiting the upside, keeping gold below $4,450.
Markets are now focused on this week’s US PPI and CPI data, which will be crucial in determining expectations for the Fed’s upcoming rate decision. Stronger-than-expected inflation could reinforce rate-hike expectations, support the dollar and weigh on gold, while softer inflation could weaken the dollar and provide further upside for the precious metal. The stronger August NFP has already increased bets on a Fed hike, although analysts argue that firmer inflation data is needed for markets to price this more aggressively.
Meanwhile, higher oil prices could fuel inflation and strengthen the case for tighter Fed policy, creating a conflicting environment for gold. Overall, gold’s near-term outlook remains cautious and range-bound, with the inflation data likely to provide the next major directional catalyst.
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