Global equities are set to close out August on a cautious note Monday, with U.S. stock futures trading mixed and Treasury yields slightly lower as traders digest fresh interest rate projections following Federal Reserve Chair Kevin Waller's hawkish inflation commentary at Jackson Hole. Concurrently, escalating Middle East tensions have pushed oil prices upward. As of the latest update, Dow futures are down 0.20%, S&P 500 futures have slipped 0.21%, and Nasdaq futures are off 0.13%. The pan-European Stoxx 600 index is essentially flat on thin volumes, with UK markets closed for a public holiday.
Market participants remain focused on parsing Chair Waller's Jackson Hole address and evaluating the future path of interest rates. Waller indicated that inflation remains excessively high, and the improved summer inflation data has not convinced him that the underlying inflationary trend has shown substantial improvement. He emphasized the need for the Fed to gain sufficient confidence that underlying inflation is moving back toward the 2% target at a clear and sufficiently rapid pace. Morgan Stanley analysts, including Michael Gapen, noted in a report that while the most direct interpretation of Waller's speech leans hawkish, they are not convinced an immediate rate hike is imminent. They added that they maintain their view of the Fed holding rates steady this year based on evidence of slowing inflation.
In other developments, Brent crude has surged 2.9%, nearing $91 per barrel, following renewed military exchanges between Washington and Tehran for the first time in about a month. The U.S. Central Command struck rocket launcher systems that were being prepared to lay mines in the Strait of Hormuz. In response, Iran's Islamic Revolutionary Guard Corps stated it had attacked a U.S. military airbase in Jordan. President Donald Trump subsequently posted that Iran's main oil export terminal, Kharg Island, was being "blown to smithereens," though there was no immediate military confirmation of this claim.
Markets have reacted swiftly to these developments, with the probability of a Fed rate hike in September climbing to 57%. This has driven a notable increase in short-term Treasury yields, flattening the yield curve. The 2-year Treasury yield, most sensitive to rate changes, dipped 3 basis points, partially paring Friday's gains. Following Waller's warning that inflation has not shown substantial easing and that policymakers have "more work to do," traders have significantly increased bets on a September hike, although some market participants express skepticism about whether the Fed will actually follow through. Swaps market data compiled by Bloomberg indicates traders now price in roughly a 60% chance of a rate increase at next month's meeting, up substantially from around 34% before Waller's speech.
Waller did not explicitly endorse a September rate hike, stating that current financial conditions are not restrictive and describing interest rates as the Fed's "primary tool" for achieving its policy mandate. Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities, noted in a report that Waller has re-established his hawkish credibility at Jackson Hole by explicitly emphasizing inflation as the greater risk. However, Varathan noted this neither represents a commitment to an immediate hike in September or October, nor does it indicate a preference for initiating a sustained hiking cycle.
Several institutional bond investors, including ABN Amro Investment Solutions and Brandywine Global Investment Management, also express doubt about the market's growing expectations of an imminent Waller-led rate hike. Michael Feroli, chief U.S. economist at JPMorgan, stated that while they still expect the Fed to wait until December for a rate increase, they agree a September move is a realistic possibility. He added that regardless of the exact timing, Waller's speech demonstrates the Chair's willingness to translate inflation concerns into actual policy tightening. Barclays now anticipates the Fed will implement 25 basis point rate hikes in both September and December.
Yen Intervention Signals on Watch
Elsewhere, the dollar is slightly lower against major currencies, following its largest single-day gain in over two months on Friday. The yen edged up 0.1% to 159.87 per dollar on Monday, having fallen to a one-month low after last week's dollar surge. Traders remain vigilant for potential stronger verbal intervention signals from Japanese officials. Treasury Secretary Scott Bessent stated in a Reuters interview on Sunday that he plans to meet with the Bank of Japan Governor. Market speculation is growing that the BOJ may raise rates in September, with analysts suggesting Japan needs successive hikes to support the yen, which has slipped back above the 160 threshold against the dollar. When questioned about yen movements, Bessent indicated that the currency's trajectory remains "generally well-controlled," implying the current depreciation hasn't become disorderly enough to warrant renewed joint U.S.-Japan intervention.
Gold continues its pullback, trading back above the $4,400 level after falling 3.2% on Friday due to surging bond yields. Despite this, gold is up roughly 10% in August, on track for its largest monthly gain since January.
Key Economic Data Ahead
Friday's U.S. August non-farm payrolls report and the September 11th consumer price index data will be crucial in determining whether the Fed might act as soon as next month. Economists project August non-farm payrolls to have increased by 58,000, following an unexpected decline of 23,000 in July, with the unemployment rate expected to hold steady at 4.1%. Analysts believe only significantly weaker-than-expected employment data would substantially diminish market bets on a September rate hike.
Inflation concerns are also expected to drive New Zealand's central bank to raise rates for a second consecutive time on Wednesday. Meanwhile, the Bank of Canada is expected to hold rates steady amid concerns that a trade dispute with the U.S. could weigh on the Canadian economy. Inflation and interest rate issues are also anticipated to be core topics at the G20 finance ministers and central bank governors meeting scheduled for Monday and Tuesday in North Carolina.
Goldman Sachs research indicates that the global AI investment cycle is entering a trillion-dollar era. The bank's analysis, which expands upon its prior $794 billion estimate of U.S. hyperscaler capital expenditures to encompass true global AI investment, forecasts approximately $1 trillion in worldwide AI investment for 2026, with about $581 billion of that occurring in the U.S. Goldman's calculations also suggest cumulative global AI investment since 2022 will reach a record $1.8 trillion by the end of 2026, with leading indicators remaining at the upper end of their range since 2022, implying a near-term capex inflection point has not yet arrived.
Societe Generale has issued a warning that the Fed will hike rates three times by March of next year. The French bank predicts the Fed will begin raising rates in September, driven by persistent inflation and an improving labor market pushing policymakers toward a more restrictive stance. According to the latest report from Societe Generale's Chief U.S. Economist Jan Gruen, the bank now forecasts 25 basis point hikes at both the September and December meetings, followed by another increase in March 2027. The report notes that uncertainty surrounding the final hike is relatively high.
Individual Stock Movers
Insurance broker Aon is down 1.8% after announcing a $17 billion deal to acquire USI Insurance Services from KKR. Aon stated the acquisition will create "the premier middle-market platform in the U.S."
Following the first U.S.-Iran military clash in the Middle East since July, WTI crude futures are up over 3%. Energy stocks are broadly higher in Monday's pre-market trading: Halliburton (HAL) is up over 2.5%, Chevron (CVX) has gained 2%, Valero Energy (VLO) and Occidental Petroleum (OXY) are each up 2%, and Exxon Mobil (XOM) is up more than 1.5%.
California lawmakers have voted down a bill that would have limited claims against utility companies when their equipment sparks wildfires. As a result of the legislative outcome, PG&E Corporation (PCG) has tumbled 16%. Several Wall Street analysts have subsequently downgraded the stock. Mizuho analysts wrote that investors should allocate to utility stocks with lower wildfire liability risk.
Pinterest is down over 3% after disclosing in a SEC filing that Chief Financial Officer Julie Blau Donnelly will depart at the end of October. Vikram Naidu, Vice President of Corporate Finance and Business Operations, will serve as interim CFO.
GameStop shares are up 4% following the release of preliminary second-quarter results. The company forecasts net sales to decline year-over-year but expects operating and net income to rise significantly. Baird has upgraded Deere & Company to Outperform, lifting the tractor maker's shares by 1%. The analysts believe that rising crop prices boosting farmer profits will increase demand for agricultural equipment, making the stock attractive for capturing growth in the sector.
Market Open: Indices Dip as U.S.-Iran Clash Resumes After a Month
U.S. major indices opened lower on Monday, echoing the renewed conflict between the U.S. and Iran. At the bell, the Dow fell 0.49%, the S&P 500 slipped 0.25%, and the Nasdaq dropped 0.18%. Notable decliners included Edison International down 21.53%, PG&E down 19.82%, HWM down 5.76%, Sempra Energy down 5.08%, Aon down 4.90%, GEV down 3.12%, and Super Micro Computer down 2.36%. Among the "Magnificent Seven": NVIDIA (NVDA) rose 0.57%, Tesla gained 0.05%, Apple slipped 0.11%, Meta Platforms fell 0.59%, Microsoft dropped 0.78%, Amazon declined 1.04%, and Alphabet lost 1.15%.
On Sunday, U.S. Central Command confirmed to MS NOW that American forces had struck two rocket launcher sites on Iran's Larak Island, marking the first publicly acknowledged U.S. military strike on Iranian targets since late July. Iranian state media reported that Iran had attacked a U.S. military base in Jordan in retaliation. Oil prices have surged as hostilities resume. WTI futures are up over 3%, trading above $86 per barrel, while Brent has also jumped over 3%, breaking through $91 per barrel.
While the tense Middle East situation has made for a volatile August trading environment, Wall Street indices remain on track for monthly gains, bolstered by the technology sector. The Dow Jones Industrial Average is up 2.1% month-to-date, heading for a fifth consecutive monthly gain. The S&P 500 and Nasdaq Composite are poised for their first monthly advance since May, up approximately 3% and 4%, respectively. Both the S&P 500 and Dow hit record highs earlier in August, with tech leading the charge, especially AI-related names. The S&P 500 tech sector is up nearly 6% for the month, with NVIDIA (NVDA) rising over 8%, Microsoft up 10%, and Micron gaining 13%.
Despite this, August has remained turbulent. Inflation concerns have pushed Treasury yields to multi-year highs. The Treasury announced an expansion of its bond buyback program to curb the selling wave, but long-end yields remain elevated. Fed Chair Kevin Waller has expressed concerns about inflation, noting that despite better-than-expected summer data, it does not represent substantial improvement in the underlying trend. Barclays economist Jonathan Miller wrote in a research note that while Waller's hawkish remarks do not necessarily signal a September tightening given his tendency not to signal policy moves, they make a 25 basis point hike in September more likely than not. Combined with his inflation assessment, Barclays' baseline scenario anticipates another hike in December.
Societe Generale reiterated its warning of three Fed rate hikes by March next year. The bank forecasts the Fed will begin in September with 25 basis point hikes in both September and December, followed by another in March 2027, driven by persistent inflation and an improving labor market. The report notes relatively high uncertainty surrounding the final hike.
Investors will receive further signals on the U.S. economy this week with the August non-farm payrolls report due early Friday, along with monthly manufacturing and services PMI data. In Asian markets, Japan's Nikkei 225 fell 0.14%, while South Korea's KOSPI reversed early losses to close up 0.46%. China's CSI 300 gained 0.35%, while Hong Kong's Hang Seng was flat. Australia's S&P/ASX200 slipped 0.18% to 9,076 points. European stocks were mixed on Monday with the Stoxx 600 nearly flat, while energy stocks advanced on surging oil prices. UK markets were closed for a public holiday.
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