U.S. stock index futures inch higher as Treasury yields dive

What’s driving markets

The fractional gains early Tuesday in S&P 500 index futures come after the benchmark started the week with a 0.6% gain. The advance was secured as anxiety over violence in the Middle East was counteracted by comments from Federal Reserve officials suggesting a recent tightening of credit conditions reduced the need for another interest rate hike by the central bank.

Fed Vice Chair Philip Jefferson said on Monday the central bank could “proceed carefully” following the recent surge in Treasury yields to fresh 16-year highs, and Fed Bank of Dallas President Lorie Logan said the surge in long-term yields may mean less need for additional increases in borrowing costs.

The 10-year Treasury
BX:TMUBMUSD10Y,
which was not trading Monday because of a U.S. national holiday, saw its yield dive 15 basis points to 4.653% early Tuesday, though CME Treasury futures which traded on Monday had anticipated the move.

“Even with the evolving situation in the Middle East, investors remained focused on the Fed’s current thinking on interest rates and the need to contain inflation,” said Richard Hunter, head of markets at Interactive Investor.

“Comments from Fed officials provided a timely boost, suggesting that the recent gains in Treasury yields, which influence rates for borrowing levels, could be doing some of the heavy lifting for them,” Hunter added.

Traders on Tuesday were pricing in an 84% chance that the Fed will leave its policy interest rates unchanged after its November meeting, according to the CME FedWatch Tool. The chances of a 25 basis point rise in December came to 15%, down from 28% just a week ago.

But there is plenty of economic data and Fed official commentary to digest before then. Particularly important will be the producer and consumer inflation numbers for September, released on Wednesday and Thursday this week respectively.

U.S. economic updates set for release on Tuesday include the August wholesale inventories, due at 10 a.m. Eastern. The Federal Reserve Bank of New York will publish its survey of consumer expectations, including views on inflation, at 11 a.m. and there are also a number of Fed officials making official appearances and speeches on Tuesday.

Raphael Bostic, president of the Atlanta Fed takes part in a moderated conversation starting at 9:30 a.m.; Fed Gov. Christopher Waller speaks at George Mason University at 1 p.m.; Neel Kashkari,president of the Minneapolis Fed, appears in Minot, North Dakota at 3 p.m.; and Mary Daly, president of the San Francisco Fed, appears at a town hall event at 6 p.m.

Mark Newton, technical strategist at Fundstrat, said the stock market’s recovery from its low in Monday’s session was a good sign: “[The S&P 500] is now back above the important 4336 level that marked former lows. While I’ll gain even more conviction if QQQ [a Nasdaq 100 ETF] can regain $369.15 near 9/9 lows, Monday’s about face was quite constructive in my work, and I feel it continues.”

“Support lies near 4300 and shouldn’t be tested right away, in my view, as this rally likely shows additional upside follow-through,” Newton added.

Companies in focus

• PepsiCo Inc. PEP rose 1.6% in premarket trading Tuesday, after the beverage and snack giant reported third-quarter earnings that topped consensus and raised its full-year guidance.

• Palantir Technologies
  PLTR,
  +6.02%
  rose 2.5% on news the data analytics company was awarded a $250 million contract to test and develop artificial intelligence and machine learning by the U.S. Army.