Futures Slip as Oil Spikes, Trade Tensions Mount Ahead of Holiday-Shortened Week

Dow Jones futures declined on Monday as Wall Street braced for a shortened trading week, with investors closely tracking escalating conflict in the Middle East and growing trade friction between Canada and the United States. Futures tied to the Dow fell 308 points, or roughly 0.6%, while S&P 500 futures eased 0.2%. In a contrasting move, Nasdaq 100 futures edged up 0.1%.

Oil prices climbed to a six-week high on Monday evening, driven by fresh exchanges of strikes between the U.S. and Iran over the weekend. Brent crude advanced 1.1% to $97.31 per barrel, while West Texas Intermediate futures rose 1.3% to $92.66 a barrel. With the conflict showing no signs of abating, crude has surged sharply over the past month, adding upward pressure on Treasury yields as traders worry that sustained high energy costs may fuel inflation further. The benchmark 10-year Treasury yield hit its highest level since November 2023 last week, while the 2-year yield reached a January 2025 high.

Where the market goes from here

The resilience of markets faces a key test over the coming weeks with a series of central bank meetings on the horizon, according to Ed Yardeni, president of Yardeni Research. "Global bond yields are also on the rise. The key question is whether this reflects stronger-than-expected economic growth, higher-than-anticipated inflation, or an impending fiscal debt crisis," he said. The Federal Reserve is scheduled to hold its monetary policy meeting next week. According to the CME FedWatch tool, traders currently assign a 60% probability of a 25-basis-point rate hike following the meeting. That outlook could shift this week as wholesale and consumer inflation data are due on Thursday and Friday, respectively. Renewed oil price gains amid persistent Middle East tensions may also influence the odds.

Trade tensions add another layer of uncertainty

Beyond the energy complex, traders are once again contending with simmering trade tensions between the U.S. and Canada. Retaliatory tariffs on roughly $20 billion worth of American goods are set to take effect on Tuesday. President Trump said Monday, ahead of the new levies taking effect, that Canadian aircraft maker Bombardier would be barred from selling in the United States unless it begins manufacturing its products on American soil. "No more Bombardier sales in the U.S.!" Trump wrote on Truth Social.