Futures drop, oil prices climb amid Iran conflict - what’s moving markets

Investing.com - Futures linked to the major U.S. stock indices point sharply lower, even as equities staged a broad recovery following the start of fresh conflict in Iran. U.S. President Donald Trump appears to suggest that timeline for America’s joint campaign with Israel against Iran could stretch on, saying Washington will do "whatever it takes." Oil prices march higher on worries over possible crude supply disruptions across the vital Strait of Hormuz waterway, while spot gold prices moderate amid a strengthening U.S. dollar. Elsewhere, big-box retailer Target is due to report its latest results.

1. Futures drop

U.S. stock futures sank on Tuesday, suggesting a negative start to trading after equities on Wall Street stabilized in the prior session despite jitters around the fighting in Iran.

By 03:03 ET (08:03 GMT), the Dow futures contract had fallen by 540 points, or 1.1%, S&P 500 futures had declined by 76 points, or 1.1%, and Nasdaq 100 futures had decreased by 347 points, or 1.4%.

On Monday, the benchmark S&P 500 and tech-heavy Nasdaq Composite both finished in the green, recovering from deep early losses sparked by weekend attacks on Iran by the U.S. and Israel which resulted in the death of Tehran’s longtime leader Ayatollah Ali Khamenei. Meanwhile, the blue-chip Dow Jones Industrial Average slipped by just 0.2%, paring back much of its own sharp initial declines.

"[S]tocks saw pressure out of the gate, but the major indices staged an impressive rebound from their lows as U.S. equity investors stayed calm about events unfolding in the Middle East," analysts at Vital Knowledge said in a note to clients.

While President Trump warned that the campaign could last for between four to five weeks and Iran retaliated with air strikes on targets across the Middle East, the "consensus view is that this conflict won’t metastasize into an uncontrolled quagmire," the analysts added.

Although the turmoil in Iran remained the central focus, other factors were hovering in the background for investors, including a jump in recently out-of-fashion technology stocks and economic data showing a surge in input prices paid by U.S. manufacturing firms.

2. Iran conflict in focus

Still, uncertainty surrounds the outlook for the Iran conflict, with Trump himself conceding that the violence may extend beyond his current projected timeline.

Speaking at his first public event since the start of the attacks, Trump said "we’re already substantially ahead of our time projections," but noted that "whatever the time is, it’s okay."

"Whatever it takes," Trump said. He later claimed in a social media post that the U.S. has a "virtually unlimited" supply of some types of weapons.

Along with the killing of Iran’s top leader, the joint U.S. and Israeli strikes have led to the sinking of at least 10 Iranian warships and have hit over 1,000 targets, Reuters has reported. Israel’s military has said it is now launching more strikes on Iran and in nearby Lebanon, while its forces had taken new areas of southern Lebanon.

Media reports said Tehran has escalated its retaliation in response, striking the sites in the Gulf region early on Tuesday, including the U.S. embassy in Saudi Arabia and Dubai’s airport, a major hub for international travel. Travel and hotel stocks were among the biggest laggards on Monday, reflecting concerns around global flight disruptions.

Amazon’s cloud-computing business also said two of its facilities in the UAE and Bahrain were hit by drone strikes and were "significantly impaired."

3. Oil prices climb

Oil prices continued to surge, adding to the previous session’s sharp gains, as threats to flows through the Strait of Hormuz continued to underpin supply disruption worries.

Brent futures soared 4.3% to $81.10 a barrel and U.S. West Texas Intermediate crude futures rose 4% to $74.05 a barrel.

Both contracts closed more than 7% higher after climbing as much as 13% to one-year highs on Monday.

Tensions have intensified after Iranian officials vowed to attack any ship attempting to pass through the Strait of Hormuz, raising the prospect of disruption to crude flows from the major Gulf producers. Still, some analysts have suggested that the OPEC+ producer group’s willingness to increase output could provide a modest buffer to possible major stoppages of oil flows.

"While a full, long-term closure of the Strait remains an extreme scenario, even partial disruption to tanker traffic tightens market balances and could push crude prices materially higher if sustained. Continued military escalation and elevated risk premia in energy markets are likely to dominate price action until there is clearer evidence of de-escalation or alternative supply routes emerge,” Laurence Booth, Global Head of Markets at CMC Markets, told Investing.com.

Fears over the choking off of key oil supplies weighed heavily on Asian markets on Tuesday, with stocks in South Korea, Tokyo and Taiwan all dropping. European markets declined as well.

4. Spot gold eases

Spot gold prices edged lower, reversing course after gains in early trade as a sharply stronger U.S. dollar dented the appeal of bullion, while investors assessed the widening Middle East conflict and oil supply fears.

Spot gold was last down 0.3% at $5,309.17 an ounce, after rising as much as 1% to $5,379.65/oz earlier in the session. U.S. Gold Futures inched up by 0.2% at $5,320.24/oz. The yellow metal gained 1% in the previous session.

Bullion is viewed as a safe haven in times of geopolitical stress, but typically comes under pressure as the greenback strengthens.

5. Target to report

Target is due to report its latest quarterly results, potentially serving up a fresh glimpse into the spending habits of U.S. consumers facing an ongoing affordability crisis.

Although Trump has described the economy as "roaring," recent polls have suggested that many Americans do not share the sentiment. A Reuters/Ipsos poll last month showed that 68% of respondents, including those in Trump’s Republican Party, disagreed with the statement.

U.S. growth slowed by more than anticipated in the fourth quarter, but observers widely blamed that on a government shutdown, noting that consumer and business spending was solid. Some economists have predicted that the economy, powered in part by tax cuts in Trump’s signature budget bill signed into law last year, will expand this year, albeit modestly.

Against this backdrop, Target has struggled to entice shoppers eager to rein in expenditures, unlike peers such as Walmart. Profit at Target has slumped by 14% over the past five years.

Shareholders, including pension funds in New York and California, have subsequently begun to openly question the decisions made by the company’s management.