Investing.com - U.S. stock futures were little changed on Wednesday as investors remained cautious ahead of key U.S. economic data and the Federal Reserve’s Beige Book, while renewed U.S.-Iran strikes and a sharp rise in global bond yields kept risk appetite in check.

1. U.S. futures steady as investors weigh rates and Iran

U.S. stock index futures were little changed on Tuesday evening as investors remained cautious about the outlook for interest rates and the risk of further U.S.-Iran strikes.

S&P 500 Futures were flat at 7,637.5 points by 03:20 ET, while Nasdaq 100 Futures were unchanged at 29,112 points and Dow Jones Futures rose 0.17% at 52,914 points.

The cautious tone follows a weak session on Wall Street, where the major indexes fell as much as 1% in a sluggish start to September.

Investors are being pulled in two directions. Expectations for higher interest rates are weighing on stock valuations, while renewed tensions in the Middle East are keeping oil prices and inflation risks elevated.

2. Iran tensions keep Strait of Hormuz in focus

Markets remained on edge after the U.S. carried out another round of strikes against Iran’s Islamic Revolutionary Guard Corps, marking Washington’s second attack on Iran this week.

The two countries remain at odds over the Strait of Hormuz. The U.S. says the crucial waterway remains open to commercial shipping, while Iran says it remains closed.

Shipping data, however, showed traffic through the strait was still running at only a fraction of pre-war levels.

President Donald Trump also warned that the U.S. could launch “harder” strikes if Iran retaliates. Trump had earlier threatened to target Kharg Island, a major Iranian oil export terminal.

Hormuz is one of the world’s most important oil-shipping routes. Any prolonged disruption could push crude prices higher, increasing fuel and transportation costs and potentially putting fresh pressure on inflation. That would be negative for consumers and could make it harder for the Federal Reserve to hold interest rates.

3. ADP jobs data, factory orders and Fed Beige Book due

Investors will get several economic updates on Wednesday, including the ADP private payrolls report, factory orders and the Federal Reserve’s Beige Book.

The ADP report will provide an early look at the health of the U.S. labor market ahead of the government’s monthly jobs report.

The Beige Book, meanwhile, will offer the Fed’s latest assessment of economic activity, prices and hiring across its 12 districts.

Markets are highly sensitive to signs that the economy is either slowing or remaining too strong. Weak jobs and economic data could support expectations for lower rates, while stronger-than-expected numbers could reinforce the case for the Fed to keep policy tight.

4. Bank of Canada expected to hold rates at 2.25%

The Bank of Canada is also set to announce its latest interest-rate decision, with markets widely expecting policymakers to leave the benchmark rate unchanged at 2.25%.

The decision comes as central banks globally continue to balance inflation risks against signs of slowing economic growth.

While the decision is unlikely to directly drive U.S. stocks, investors will be watching the tone of the Bank of Canada’s statement for clues about how other central banks are responding to persistent inflation and elevated borrowing costs.

5. Global bond yields keep climbing

Rising government bond yields remain a major source of pressure for financial markets.

The U.S. 10-year Treasury yield is approaching 5%, close to a three-year high, while Australia’s 10-year government bond yield has climbed to its highest level in more than 15 years. Japan’s 10-year yield is also at around 30-year highs.

Higher yields make bonds more attractive relative to stocks and increase borrowing costs across the economy.

This is particularly important for growth and technology stocks, whose valuations depend heavily on expectations of profits further into the future. When bond yields rise, those future profits become less valuable in today’s terms, potentially putting pressure on high-priced stocks. Higher borrowing costs can also weigh on businesses, housing and consumer spending.

Investors are facing a difficult combination of higher bond yields, renewed Middle East tensions and uncertainty over the Fed’s next move. The key question for markets is whether inflation remains sticky enough to keep interest rates high, or whether economic and labor-market weakness eventually gives central banks room to ease policy.

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