U.S. equity markets slipped into the red Wednesday in early morning trading in New York as hotter-than-expected February producer price data reignited inflation fears just hours before the Federal Reserve is set to deliver its rate decision and updated economic projections, while Brent crude surged above $108 a barrel following an Israeli strike on Iran’s South Pars natural gas processing complex.

South Pars Strike Marks Major Escalation

Israel struck Iran’s South Pars gas processing facility in Assaluyeh on Wednesday morning, hitting tanks and infrastructure at the complex.

South Pars is Iran’s largest natural gas field and the source of roughly 70% of the country’s gas output. It shares a reservoir with Qatar’s North Field — the world’s largest natural gas deposit.

Iran’s Revolutionary Guards immediately issued evacuation warnings for several Gulf energy facilities. Iranian state media declared that Gulf energy sites are now “legitimate targets.” Iran’s Foreign Ministry said Tehran would retaliate. Qatar’s foreign ministry called the strike “a dangerous and irresponsible step amid the current military escalation.”

Prediction odds of the Strait of Hormuz reopening by April 30 fell to 25%, as tracked by Polymarket.

Brent crude surged 4.8% to $108.50 a barrel. WTI crude – as tracked by the United States Oil Fund (NYSE:USO) – climbed 2.3% to $98.15.

Natural gas futures added 0.7% to $3.05 per MMBtu.

The prospect of Iranian retaliatory strikes on Gulf energy infrastructure sent oil markets sharply higher at the open.

Hot PPI Compounds Fed Headache

February producer prices came in well above expectations. The headline producer price (PPI) index rose 0.7% month-over-month against a 0.3% forecast.

Core PPI gained 0.5% versus a 0.3% estimate.

On an annual basis, headline PPI hit 3.4% — the highest since February 2025 — while core PPI accelerated to 3.9%, up from 3.6% in the prior reading.

The data complicates the Federal Reserve’s task considerably.

The FOMC is still expected to hold the fed funds rate steady at 3.75% when it announces at 2:00 p.m. ET.

Markets will focus on the updated dot plot and Chair Jerome Powell’s press conference for any shift in tone on the path to easing.

Fed futures markets are not pricing in a cut until September or October, with only one reduction expected for the full year.

Equities: Red Across The Board, Energy Outperforms

The S&P 500 index fell 0.2% to 6,704.77. The Nasdaq 100 shed 0.1%. The Russell 2000 underperformed, dropping 0.6% to 2,505.99. The CBOE Volatility Index (VIX) ticked up 1.9% to 22.80.

Energy was the only sector in positive territory.

The Energy Select Sector SPDR Fund (NYSE:XLE) gained 0.3% to $58.67. Industrials added 0.2%. On the downside, Consumer Staples — tracked by the Consumer Staples Select Sector SPDR Fund (NYSE:XLP) — fell 1.1%.

Health Care dropped 0.9%. Materials lost 1.0%.

Gold Drops Sharply, Dollar Strengthens

Spot gold tumbled 2.9% to $4,857.49 per ounce, a decline of $144.51 on the session. The SPDR Gold Shares (NYSE:GLD) tracked the move lower.

What To Watch Ahead

  • 2:00 p.m. ET — FOMC rate decision. Hold is near-certain. The dot plot and Powell’s tone on cuts are the market-moving variables.
  • Iranian retaliation. Tehran has warned Gulf energy sites are now legitimate targets. Any strike on Saudi, UAE or Qatari infrastructure would be a new front in the conflict.
  • $100 WTI. Crude is 1.6% below that psychological level. A breach would likely accelerate the equity selloff and force a reassessment of Fed cut timing.

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