European stock futures are expected to open lower on Tuesday as U.S. stock futures weaken. Asian stock benchmarks were mostly down, while Treasury yields and the dollar saw gains. Oil and gold prices declined.
Investors are closely watching comments from Federal Reserve officials and upcoming U.S. economic data, which could impact the stock market. U.S. stocks ended mostly higher on Monday as Treasury yields reached multi-year highs and lawmakers avoided a government shutdown.
Chief equity market strategist at Federated Hermes, Phil Orlando, expects another month of volatile trading leading up to the Federal Reserve’s November meeting. He predicts a quarter percentage point increase in interest rates followed by a year of steady rates. The anticipation of rate cuts may rally stocks in the meantime.
The president of the Cleveland Federal Reserve, Loretta Mester, stated that she believes the central bank may need to raise interest rates once more this year and maintain high rates for some time to control inflation.
The dollar strengthened in Asian trading due to higher Treasury yields. RBC Capital Markets noted that rising bond yields are causing market jitters and boosting the dollar. Saxo strategist Charu Chanana believes the dollar will continue to strengthen in the fourth quarter, unlike last year.
Treasury yields were generally higher early Tuesday, following a selloff of U.S. government debt. Market expectations for interest rate hikes in November and December are reflected in the pricing of Treasury yields.
Oil prices were lower due to rising U.S. yields and a stronger dollar. ANZ analysts noted that although supply remains tight, expensive storage costs due to higher interest rates may lead to further destocking of oil inventories. The reopening of the key oil pipeline between Iraq and Turkey this week might ease global supply tightness.
Gold prices edged down due to elevated U.S. bond yields and a strong dollar. ANZ analysts added that increasingly hawkish signals from Federal Reserve officials are pressuring gold. The precious metal is approaching a “death cross,” which could result in further declines.
Copper prices fell due to the strength of the dollar, which typically has an inverse relationship with the industrial metal. ANZ Research analysts highlighted the market’s focus shifting to the stronger dollar and rising U.S. bond yields.
Morgan Stanley analysts predict that iron-ore prices could soften in the fourth quarter if China’s steel output falls due to production controls or weak margins. However, they expect prices to rebound in the first quarter of 2024. Support for prices comes from robust China steel output, strong blast furnace utilization, falling port inventories, and weaker Chinese iron-ore output.
In other news, the Japanese government is prepared to take action if the yen weakens too sharply, according to Finance Minister Shunichi Suzuki. The president of the Cleveland Federal Reserve, Loretta Mester, believes the central bank may need to raise interest rates once more this year to control inflation. Federal Reserve Gov. Michael Barr stated that the biggest challenge for the central bank is determining how long to maintain high interest rates. Ahead of the United Nations’ climate summit, the United Arab Emirates called on fossil-fuel producers to play a central role in reducing emissions. Meta Platforms has proposed monthly subscriptions for ad-free Instagram and Facebook in Europe. Luxury retailers, including Gucci and Chanel, are investing in U.S. real estate, demonstrating the enduring appeal of in-person shopping. Ukrainian soldiers are fighting to retake the town of Bakhmut from Russian forces.
More detail via Morningstar here… ( Image via Morningstar )