By Introduction
U.S. stock futures have increased early Tuesday as investors anticipate that the Federal Reserve may be nearing the end of its cycle of interest rate hikes. This has led to a significant drop in Treasury yields, boosting market sentiment.
Stock-Index Futures Trading
- S&P 500 futures (ES00) have risen by 7 points, or 0.2%, to 4375.
- Dow Jones Industrial Average futures (YM00) have gained 60 points, or 0.2%, reaching 33861.
- Nasdaq 100 futures (NQ00) have climbed 34 points, or 0.2%, reaching 15221.
Previous Day Performance
On Monday, significant gains were observed in the major indices:
- The Dow Jones Industrial Average (DJIA) rose by 197 points, or 0.59%, closing at 33605.
- The S&P 500 (SPX) increased by 27 points, or 0.63%, closing at 4336.
- The Nasdaq Composite (COMP) gained 53 points, or 0.39%, closing at 13484.
Positive Market Sentiment
The rise in S&P 500 futures on Tuesday builds upon the positive momentum from the previous week. Despite concerns about violence in the Middle East, confidence was restored by statements from Federal Reserve officials. These officials expressed that recent tightening of credit conditions has eased the need for another rate hike.
Federal Reserve Vice Chair Philip Jefferson emphasized the importance of proceeding with caution, considering the recent surge in Treasury yields to a 16-year high. Furthermore, Federal Reserve Bank of Dallas President Lorie Logan indicated that the spike in long-term rates may lessen the necessity for additional borrowing cost increases.
Impact on Treasury Yields
On Tuesday, the 10-year Treasury yield (BX:TMUBMUSD10Y), which was not traded on Monday due to a U.S. national holiday, experienced a significant decline of 15 basis points to reach 4.653%.
Market Focus and Expert Opinion
Despite the ongoing Middle East situation, investors remain primarily focused on the Federal Reserve’s stance on interest rates and its efforts to curb inflation. Richard Hunter, Head of Markets at Interactive Investor, states that the comments from Fed officials have provided a timely boost to the market. He believes that the recent surge in Treasury yields, which directly affects borrowing rates, may be alleviating some of the pressure on the central bank.
Overall, market participants are optimistic about the potential slowdown in interest rate hikes, leading to improved market sentiment and increased stock futures.
Economic Data and Fed Chatter Point Towards Unchanged Rates
Traders on Tuesday were closely examining the chances of the Federal Reserve leaving interest rates unchanged following its November meeting. As of now, there is an 88% probability that rates will remain steady, while the likelihood of a 25 basis point hike in December has decreased to 28%, down from 40% just a week ago.
However, before any final decisions are made, there is a significant amount of economic data and discussions within the Fed that need to be considered. Among these crucial factors are the upcoming release of producer and consumer inflation figures for September, which are set to be announced on Wednesday and Thursday respectively.
In addition, there are several key U.S. economic updates scheduled for release on Tuesday. These include the August wholesale inventories report, due at 10 a.m. Eastern Time. Furthermore, at 11 a.m., the Federal Reserve Bank of New York will publish its survey of consumer expectations, which includes valuable insights on inflation. Additionally, there will be multiple appearances and speeches by various Fed officials throughout the day.
Notable figures participating in official events on Tuesday are as follows:
- Raphael Bostic, president of the Atlanta Fed, engaging in a moderated conversation at 9:30 a.m.
- Fed Gov. Christopher Waller addressing George Mason University at 1 p.m.
- Neel Kashkari, president of the Minneapolis Fed, appearing in Minot, North Dakota at 3 p.m.
- Mary Daly, president of the San Francisco Fed, attending a town hall event at 6 p.m.
Looking at the stock market, Mark Newton, technical strategist at Fundstrat, expressed optimism about its recovery from Monday’s low. Newton viewed the S&P 500’s return above the significant level of 4336 (which previously served as a bottom) as a positive sign. While he believes that further confirmation would be provided if the QQQ (a Nasdaq 100 ETF) could regain its position near the 9/9 lows of $369.15, Newton finds Monday’s turnaround to be encouraging and anticipates potential upward movement.
According to Newton, key support lies around the 4300 level, which he believes won’t be immediately tested. He sees the current rally as having the potential for additional upside follow-through.
In conclusion, the combination of economic data releases, Federal Reserve discussions, and significant market movements indicates that market participants are carefully analyzing the probability of unchanged interest rates in the coming months.
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