March 3 (Reuters) - Stock index futures tied to the Nasdaq led steep losses on Tuesday as investors braced for the impact of a widening conflict in the Middle East on inflation and global trade.
Tehran's threat to attack any vessel attempting to transit the Strait of Hormuz, combined with production halts by several Middle Eastern oil and gas producers, has driven up global shipping rates and prices of crude and natural gas.
The strait, a critical chokepoint, carries roughly one-fifth of the world's total oil consumption.
Industries such as airlines and travel that are exposed to crude prices were knocked back for a second day. Delta (DAL.N), and Royal Caribbean (RCL.N), fell about 4% each.
"These are uncomfortable days for risk takers, and for now, energy is king," Kathleen Brooks, research director at XTB, said. "But, when energy prices spike, (it's) very damaging for the global economy and causes pain elsewhere. We are witnessing that today."
The selloff was widespread - technology stocks Nvidia (NVDA.O), and Microsoft (MSFT.O), slipped 2.6% and 1.4%, respectively, after gaining in the previous session.
At 07:29 a.m. ET, Dow E-minis were down 681 points, or 1.39%, while U.S. S&P 500 E-minis slipped 95.25 points, or 1.38%. Nasdaq 100 E-minis slumped 447.5 points, or 1.79%.
Futures tracking the small-caps index slid 2.1%, while Wall Street's fear gauge, the CBOE volatility index (.VIX), opens new tab, spiked to a fresh three-month high of 27.30 points.
INFLATION TO WEIGH ON FED THINKING
Investors were worried that higher oil prices could stoke inflation across the broader economy and further complicate policy decisions for central bank officials already contending with price increases driven by tariffs.
The U.S. 10-year Treasury yield touched its highest level in more than a week and investors pushed back expectations for a 25-basis-point interest rate cut by the Federal Reserve to September from July, according to LSEG-compiled data.
Markets will be looking out for fresh signals from the Fed, given recent divisions over the path of rates. John Williams, a voting member, Jeffrey Schmid, and Neel Kashkari are scheduled to speak later in the day.
Oil and gas and defense stocks were among the few gainers. Occidental (OXY.N), rose 2% and Cheniere Energy (LNG.N), climbed 4%, while AeroVironment (AVAV.O), added 3.8%.
Prices of traditional safe-havens such as precious metals slid due to a stronger dollar . U.S.-listed miners such as Sibanye Stillwater and Gold Fields fell 12.3% and 8.7%, respectively.
Beyond geopolitics, investors are grappling with uncertainty over how disruptive AI models might be for traditional businesses, while also facing volatility in the private credit market.
MongoDB's (MDB.O), shares plunged 26.8% after the database software company forecast quarterly profit below Street estimates.
Target (TGT.N), shares gained 4% after new CEO, Michael Fiddelke, pledged a return to sales growth and issued an upbeat profit outlook, signaling a turnaround at the struggling retailer.
Reporting by Johann M Cherian, Pranav Kashyap and Ragini Mathur in Bengaluru; Editing by Saumyadeb Chakrabarty and Devika Syamnath
