Rising oil prices, a reassessment of the Federal Reserve’s policy path, trade tensions, and a strengthening Japanese yen are shaping the main risks for the U.S. market, Freedom Broker analysts believe. At the time of preparing the review, the risk balance for the upcoming session was assessed as moderately negative amid average volatility. The document does not specify target levels or the potential magnitude of changes in stock indices.
Oil heightens inflation risks
Rising oil prices will be the main source of uncertainty for the market after the long weekend, Freedom Broker analysts note. Following another exchange of strikes between the U.S. and Iran and reports of an attack by Yemen’s Houthis on Saudi Aramco facilities, Brent and WTI quotes reached their highest levels in about six weeks. The escalation of the conflict in the Middle East increases the risk of disruptions to energy supplies.
Higher fuel costs could accelerate inflation and complicate the Fed’s task. At the same time, the energy fund XLE remains the leader among the major sectors since the beginning of the year, up more than 45%. At the time of preparing the review, WTI oil was priced at $91.50 per barrel. Over the month, its price increased by 18.32%, and over the year—by 43.39%.
Inflation data will affect rate expectations
Analysts cite a reassessment of the outlook for U.S. monetary policy as the second key factor. The August producer price index and consumer price index are due to be released on September 10 and 11, respectively—ahead of the Fed meeting on September 15–16. Previous data showed the resilience of the U.S. economy. Nonfarm payrolls increased by 162K in August versus a consensus of 53K, while unemployment held at 4.1%. Average hourly earnings rose by 0.3% month over month and 3.1% year over year.
After these data, market participants began to more actively price in maintaining the Fed’s current course or raising the interest rate.
Trade disputes may intensify
Foreign-trade tensions also remain in focus. The administration of U.S. President Donald Trump is increasing pressure on foreign manufacturers, demanding that they localize production in the country in order to retain access to the U.S. market.
In particular, the president threatened Canada’s Bombardier with restrictions if the company does not set up production in the U.S. At the same time, retaliatory Canadian tariffs on U.S. goods with a total value of about $20 bn have taken effect. Freedom Broker points to the ongoing risk of further escalation of trade disputes.
Indexes ended the previous session mixed
At the close of trading on September 4, the S&P 500 fell 0.38% and the Dow Jones dropped 0.51%. The Nasdaq 100 gained 0.21% and the Russell 2000 added 0.25%. At the time of preparing the review, U.S. index futures were mostly lower: S&P 500 contracts were down 0.24%, Dow Jones—0.72%, and Russell 2000—0.37%. Nasdaq 100 futures rose 0.10%.
According to Freedom Broker, the market’s focus remained on the outlook for Fed policy, oil prices, and the AI segment. A combination of geopolitical, inflation, currency, and trade factors supported a moderately negative risk balance.
Not an individual investment recommendation.