Wall Street futures edged lower on Monday after military clashes between the U.S. and Iran drove up oil prices, stoking inflation fears as the interest-rate outlook turns more hawkish.
The losses could set the tone for September, which is typically a weak month for equities, and are likely to up the ante at the U.S. Federal Reserve's meeting next month.
Traders see a nearly 60% chance of a rate hike at the September meeting, according to the CME FedWatch tool, a sharp increase from 41.4% a week ago, after Fed Chair Kevin Warsh said policymakers may need to increase interest rates if inflation doesn't ease to the central bank's 2% target.
"Chair Warsh delivered a distinctly more hawkish message than investors anticipated, making it abundantly clear that policy easing is not on the horizon," said David Chao, global market strategist, Asia Pacific, at Invesco.
Warsh's comments, delivered on Friday at his first appearance at the Fed's Jackson Hole symposium, came after mixed data in recent weeks.
A consumer inflation report earlier this month showed price pressures were mild, but the Personal Consumption Expenditures reading, the Fed's preferred gauge, was hotter than expected.
The ambiguity could raise the stakes for the monthly U.S. employment report, due on September 4. Recent reports did not indicate that "underlying trends have meaningfully improved," Warsh said on Friday.
"Market participants are looking ahead more nervously to U.S. nonfarm payrolls data on Friday, which is likely to be the highlight of the trading week amid heightened monetary policy uncertainty," said Kyle Rodda, senior financial market analyst at Capital.com.
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