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Dow futures jump more than 300 points to extend strong start to fourth quarter






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MARKET SNAPSHOT

U.S. stock futures rose on Tuesday as bond yields fell amid hopes central banks may get less aggressive on rate-hiking plans.

How are stock-index futures trading

  • S&P 500 futures climbed 54 points, or 1.4% to 3744
  • Dow Jones Industrial Average futures rose 375 points, or 1.2% to 29913
  • Nasdaq 100 futures advanced 198 points, or 1.7% to 11484

On Monday, the Dow Jones Industrial Average rose 765 points, or 2.66%, to 29491, the S&P 500 increased 93 points, or 2.59%, to 3678, and the Nasdaq Composite gained 240 points, or 2.27%, to 10815. The S&P 500 enjoyed its biggest percentage gain since July 27th but remains down 22.8% for the year to date.

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What’s driving markets

The S&P 500 was in line to extend the previous session’s 2.6% per cent bounce off 22-month lows.

There were multiple factors driving the rally at the start of the week, said Jim Reid, strategist at Deutsche Bank, including oversold conditions and easing market tensions in Europe, “but the main one was growing speculation that central banks could soon pivot towards a more dovish stance, particularly after the market turmoil over the last couple of weeks”.

The Fed, alongside most of its developed-economy peers, in the past several months has been hiking interest rates aggressively to combat inflation running at multi-decade highs, and the consequent surge in bond yields has triggered a bear market across equity benchmarks.

Now some investors are hoping the peak of this monetary tightening cycle may be in sight.

Supporting this narrative was a weak U.S manufacturing survey on Monday, which Barclays noted showed easing costs pressures amid shorter delivery delays and order backlogs.

The U.S. ISM manufacturing index described expansion slowing faster than investors expected, and “gave a positive spin to the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“I believe that this is an important sign that despite the Federal Reserve officials’ strongly hawkish rhetoric, many investors no longer believe that the Fed could continue tightening at the current speed. That’s a good ingredient for a global market rebound,” Ozkardeskaya added.

Adding to this notion was news from Down Under, where the Reserve Bank of Australia delivered a less-than-expected 25 basis point rate hike at its meeting on Tuesday, helping stocks in Asia to move higher and bond yields lower.

“The cross-asset reaction to the RBA’s below-consensus 25bp rate hike is critical from a risk-taking perspective to determine if markets can bring relief from the first ‘soft’ pivot from a major central bank following the recent spike in cross-asset volatility,” said Stephen Innes, managing partner at SPI Asset Management.

“While inflation has yet to peak in Australia, the RBA’s more cautious hiking pace indicates that it is prepared to wait for the effects of monetary policy tightening already enacted to emerge more fully,” Innes added.

Investors were hoping such caution may have to be adopted by the Fed. The policy-sensitive 2-year Treasury yield which ended last week around 4.28%, dipped 9 basis points in early Tuesday trading to 4.018%.

U.S. economic updates set for release on Tuesday include the job openings and quits data, alongside factory orders, all for August and all due at 10 a.m. Eastern Time.

Fed speakers include Fed Gov. Philip Jefferson at 11:45 a.m. and San Francisco Fed President Mary Daly at 1 p.m.

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