Market snapshot
Futures tied to Canada’s main stock market opened softer on Wednesday, pressured by a renewed rise in oil prices and a worsening trade dispute between Ottawa and Washington. By 06:52 ET (10:52 GMT), the S&P/TSX 60 index standard futures contract was down 8 points, or 0.4%.
Crude’s move back above the $100-a-barrel threshold was among the primary worries for investors, with Brent crude last seen trading around $100.70 a barrel. The prospect of higher energy costs is reinforcing inflation fears at a delicate moment for markets as central banks prepare for a fresh round of policy decisions.
Canadian equity backdrop
The broader S&P/TSX composite index fell in the prior session, hurt chiefly by weakness in financial stocks and slumping industrials. E-commerce company Shopify saw its shares slide to their lowest closing level since July 29, contributing to the negative tone on the Canadian board.
U.S. futures and recent trading
U.S. index futures also showed a cautious bias. By 06:13 ET, S&P 500 futures were off roughly 19 points, or 0.3%, Nasdaq 100 futures had declined about 134 points, or 0.5%, and Dow Jones futures were down some 206 points, or 0.4%.
The futures weakness followed a broad sell-off during Tuesday’s regular session: the Dow Jones Industrial Average fell 1.2%, the S&P 500 slipped 0.6% and the Nasdaq Composite lost 0.3%.
Geopolitical flare-ups and shipping risks
Heightened military activity in the Middle East added to risk-off sentiment. Iran’s Islamic Revolutionary Guard Corps said it launched strikes at a base in Jordan used by the U.S. military and attacked 10 ships on Wednesday. Tehran claimed heavy damage from the bombardments, while Jordanian officials reported that 18 of 20 Iranian missiles were intercepted and the remaining two impacted unpopulated areas.
The IRGC also stated that two U.S. vessels and eight oil tankers were targeted as they tried to transit a "prohibited and unsafe" segment of the Strait of Hormuz, a key route for global shipping which the piece notes has been effectively closed to commercial traffic throughout the war.
Those attacks followed U.S. strikes that destroyed five Iranian oil tankers, deepening a conflict described in the report as stalemated and now lasting six months. With both sides trading strikes, the piece says hopes for a quick resolution have dimmed. During a visit to Colombia, U.S. Secretary of State Marco Rubio warned Iran that it will "lose tankers" when it tries to "hit U.S. naval ships."
Precious metals and the dollar
Safe-haven demand lifted gold, aided by a softer U.S. dollar. By 05:25 ET, spot gold had risen about 1.0% to $4,397.47 an ounce and gold futures were up roughly 0.1% at $4,441.86 an ounce. The U.S. dollar index, which measures the currency against a basket of peers, was largely unchanged at 98.77. The article notes that some analysts cited by Reuters pointed to recent strength in the Japanese yen as a factor behind the dollar’s relative weakness; a weaker dollar can make gold less expensive for buyers using other currencies.
Monetary policy backdrop
Markets have adjusted their expectations for U.S. monetary policy in response to rising energy prices and signs of labor-market resilience. The report states traders are pricing in about a 60% probability that the Federal Reserve will raise rates by 25 basis points next Wednesday, up from a roughly 40% chance a week earlier. Policymakers are described as signaling a willingness to prioritize taming inflation, with the article noting that raising rates can reduce inflation but carries risks for employment and growth.
Context for investors
Taken together, the drivers noted in this update - a jump in oil, heightened geopolitical disruptions affecting shipping lanes, fresh trade measures between the U.S. and Canada and a volatile backdrop in equities - are reinforcing caution in both Canadian and U.S. markets ahead of incoming U.S. inflation data and a cluster of central bank decisions.