U.S. stock index futures gained on Tuesday, recovering after a selloff in the previous session, as investors await fresh clues on the interest rate path from key inflation data and the third-quarter earnings season that starts later this week.
All three major indexes closed down around 1% on Monday, as a jump in Treasury yields, concerns about the impact of rising conflict in the Middle East and a repricing of U.S. rate expectation pressured equities.
At 5:35 a.m. ET, U.S. S&P 500 E-minis were up 20 points, or 0.35%, Nasdaq 100 E-minis were up 75.75 points, or 0.38%, Dow E-minis were up 70 points, or 0.17%
U.S. Treasury yields retreated slightly from Monday’s highs, though the yield on the benchmark 10-year note remained above 4% as strong economic data last week prompted investors to trim bets on the scope of the Federal Reserve interest rate cuts over the rest of this year.
Traders have priced in a nearly 89% chance of a 25 basis point interest rate cut from the Fed at its November meeting. Bets on no rate change at the meeting also crept up slightly, according to CME FedWatch.
The S&P 500 is expected to report a 3.2% year-over-year earnings per share (EPS) rise in the third quarter, “with gains for six of its 11 sectors,” said Sam Stovall, chief investment strategist at CFRA Research.
Fed Governor Adriana Kugler said earlier on Tuesday she supported further interest rate cuts if inflation continues to ease, as she expects.
Some Fed officials, including John Williams and Alberto Musalem, had said on Monday that it would be appropriate to reduce rates over time.
A number of other Fed officials are expected to speak later in the day, including Raphael Bostic, Susan Collins and Philip Jefferson.
International trade balance data for August is also due later on Tuesday.
Investors were also watching out for the impacts of category 4 Hurricane Milton on the markets.
Among single stocks, shares of Honeywell International rose 2.9% after a report that the company is planning to spin off its advanced materials business.
U.S.-listed shares of Chinese companies slid, tracking losses in domestic stocks, as optimism over China’s stimulus measures waned due to the absence of more specific details.
Shares of Alibaba Group, JD.com and PDD Holdings slumped between 8.3% and 10.8%.
A lack of details on China’s long-awaited fiscal stimulus caused a rally in Chinese shares to fizzle on Tuesday, sending Hong Kong stocks tumbling and dragging down European companies and oil prices.
Other factors were also at play as markets kept a close eye on the widening conflict in the Middle East and the likely pace of Federal Reserve rate cuts after strong U.S. jobs data on Friday.
China’s CSI300 blue-chip index surged 10% in early trade to its strongest since July 2022, as the country’s markets reopened after the week-long National Day holiday.
Yet the index fell back – finishing 5.9% higher – after the chairman of China’s economic planner Zheng Shanjie provided little detail of fresh fiscal stimulus to complement the burst of monetary stimulus announced two weeks ago.
Hong Kong’s Hang Seng Index slumped 9.4%, giving up some of the big gains it made during the Chinese holiday, in a sign of profit-taking and waning investor patience.
“Markets were hoping to obtain some guidance on the size of fiscal stimulus,” said Rong Ren Goh, a portfolio manager at Eastspring Investments.
“It is likely we see markets consolidating and digesting what has already been announced, which arguably is meaningful, but not quite enough to satiate lofty expectations.”
European shares fell, with China-sensitive mining and luxury companies among the biggest losers.
The continent-wide Stoxx 600 index was down 0.9%, while Germany’s DAX was 0.8% lower and Britain’s FTSE 100 fell 1.3%.
“Essentially the markets were anticipating China would announce a bit more detail on the fiscal stimulus measures,” said Aneeka Gupta, director of macroeconomic research at WisdomTree.
“Clearly that has not panned out as they’ve reopened today, and I think that’s having a bit of a dampening impact on European stocks.”
Europe was also taking a lead from a 1% drop in U.S. shares on Monday, driven by a fall in tech companies as angst about Fed rate cuts and the Middle East took a toll.
Oil prices pared some of their gains after jumping on Monday due to the widening conflict in the Middle East as well as concerns about supply disruptions due to storms in the United States.
Brent crude futures were last down 1.9% at $79.41 a barrel, having surged above $80 a barrel for the first time in more than a month in the previous session.
Hezbollah on Monday fired rockets at Israel’s third-largest city, Haifa, and Israel looked poised to expand its offensive into Lebanon, one year after the devastating Hamas attack on Israel that sparked the Gaza war.
The key question, Gupta said, is whether Israel will strike back against Iran by hitting its oil production sites after its rocket attack last week, and what effect Chinese stimulus will have on global energy demand.
Yields on benchmark 10-year U.S. government bonds hovered above the 4% level after rising over the last two sessions in the wake of Friday’s surprisingly strong U.S. jobs report.
Traders are now pricing in a roughly 10% chance the Fed could hold rates next month and see around 50 basis points of cuts over the rest of the year.
The dollar was on the back foot, falling 0.27% against the Japanese yen to 147.78, while the euro was up 0.1% at $1.0985.
Reuters