Iran tensions and AI fears at the forefront ahead of key US data

Thursday’s scorecard shows major US Stock benchmarks closed modestly in the red amid mounting US-Iran tensions and AI disruption worries.

The scoreboard: Stocks slip – Oil rallies, Dollar extends run

The S&P 500 shed 19 points (0.3%) to 6,861, the Nasdaq 100 lost 101 points (0.4%) to 24,797, and the Dow Jones Industrial Average dropped 267 points (0.5%) to 49,395. On a more positive note, the Russell 2000 – a small-cap US Stock market index – was up by nearly 7 points (0.2%) to 2,665.

Looking under the hood across the S&P GICS sectors, financials took the biggest hit, down 0.9%, closely shadowed by consumer discretionary and technology. Utilities, however, outperformed, adding 1.1%, with industrials not far behind.

In the commodities complex, Oil prices continued to clear out offers, refreshing YTD highs of US$67.01 in recent trading. The bid came on the heels of US President Donald Trump's warning to Iran that it has 10 to 15 days to reach a nuclear deal, or ‘really bad things’ will happen. The US is assembling two aircraft carriers, fighter jets, and refuelling tankers in the region.

Elsewhere, the USD index modestly extended on its recent rebound, pencilling in a fourth consecutive day in the green, adding 0.1%. Yesterday’s US weekly jobless filings (week ending 14 February) came in lower than expected at 206,000, down from an upwardly revised 229,000 figure the week prior. This reinforces a broader picture of labour market resilience, as January’s US jobs report showed the economy adding 130,000 new payrolls and the jobless rate ticking lower to 4.3%. Alongside the recent hawkish Fed minutes and increasing geopolitical risks, this has provided USD bulls with some impetus.

Busy data docket ahead

We have a busy calendar ahead, centred mainly on US metrics. At 1:30 pm GMT, the BEA will publish the US Q4 25 GDP first estimate and the December PCE price index numbers.

GDP is expected to show the economy grew by an annualised rate of 3.0%, which, although this would mark a deceleration from Q3’s 4.4% print, is still considered healthy growth; the GDP deflator is projected to cool to 2.9% from 3.7%. An in-line outcome today would likely reaffirm the Fed’s wait-and-see stance and bolster the USD. However, a miss could underpin recessionary fears, likely weighing on the buck.

Growth data will be viewed alongside the Fed's preferred inflation gauge: the PCE price index. Headline YY PCE data is forecast to remain unchanged at 2.8%, while MM is forecast to modestly accelerate to 0.3% from 0.2% in November. On the core front, YY data is expected to increase by 2.9% from 2.8%, with MM also anticipated to tick higher by 0.3% from 0.2%.

Ultimately, any upside surprise in the PCE data would help bolster the Fed’s current stance, particularly after the Fed minutes. This would naturally underpin a USD bid. Softer inflation, on the other hand, would likely have the opposite effect.

Throughout the day, we will also receive the February S&P Global Flash PMIs, with the US data due at 2:45 pm GMT. Manufacturing is seen nudging up to 52.6 from 52.4 in January, while services are expected at 53.0 from 52.7. Both readings sit comfortably in expansion territory, which would reinforce the narrative of broadening US economic momentum and likely reinforce the greenback further.

All in all, today’s data will be important, helping either reaffirm or question the Fed’s current stance. Given that USD positioning remains stretched to the downside, upside surprises in the data could see USD shorts take profit into the weekend.