U.S. stock futures experienced a decline early on Tuesday, as the recent interest rate cuts by the People’s Bank of China did not alleviate worries about the weakening activity in the world’s second-largest economy.
How are stock-index futures trading?
- S&P 500 futures (ES00, -0.41%) dipped 18 points, or 0.4%, to 4488.
- Dow Jones Industrial Average futures (YM00, -0.48%) fell 155 points, or 0.4%, to 35216.
- Nasdaq 100 futures (NQ00, -0.33%) eased 51 points, or 0.3%, to 15219.
On Monday, the Dow Jones Industrial Average (DJIA) rose 26 points, or 0.07%, reaching 35308. The S&P 500 (SPX) increased by 26 points, or 0.58%, to 4490, while the Nasdaq Composite (COMP) gained 143 points, or 1.05%, reaching 13788.
Concerns over a faltering Chinese economy
Worries about a faltering Chinese economy once again affected global risk appetite and had an impact on U.S. stock futures during early trading.
On Tuesday, data was released indicating that retail sales and industrial production in China grew less than expected in July. This news, coupled with disappointing recent data and signs of distress in the property sector, led to a series of interest rate cuts by the central bank in Beijing.
However, instead of alleviating concerns, these unexpected monetary policy easing measures and the announcement that youth unemployment data would no longer be published only seemed to further spook the markets. As a result, S&P 500 futures lost ground in line with Asian and European markets, while prices for China-sensitive industrial commodities like oil, copper, and iron ore fell back.
China’s Central Bank Cuts Rates, Yet Government Spending Remains Vital
China’s central bank has taken the financial world by surprise with its recent rate cut. However, experts believe that this move alone will not have a significant and lasting impact unless accompanied by government spending. The effects of monetary policy are expected to be neutral or possibly even unfavorable, as policymakers seem to be hitting the panic button amidst a local confidence crisis.
Attention Turns to U.S. Household Sector as Wall Street Opens
As the Wall Street opening bell draws near, investors are now focusing their attention on the health of the U.S. household sector. Consumption plays a crucial role in the American economy, accounting for over two-thirds of its economic activity. This sector has shown resilience despite the sharp increase in borrowing costs imposed by the Federal Reserve over the past 16 months.
Key Earnings Results and Retail Sales Figures Awaited
Investors will be closely scrutinizing the earnings results from Home Depot before the regular trading session begins. Additionally, they will eagerly await the release of U.S. retail sales figures for July. These indicators will provide insights into whether consumers are starting to tighten their belts in response to prevailing economic conditions.
Other Economic Updates on the Horizon
Several other economic updates are scheduled for release today. The August Empire State manufacturing survey and the June business inventories numbers will be unveiled at 8:30 a.m. Eastern Time. At 10 a.m., traders will gain access to the August NAHB builders’ confidence index.
Equities Face Additional Pressure from Government Bond Yields
Equities took a hit as benchmark government bond yields continued their ascent. Despite the slump in China’s economic data, the 10-year Treasury yield rose to over 4.2%, nearing 15-year highs by a few basis points.
U.S. Treasury Yields: A Key Catalyst for Stock Indices
According to Mark Newton, the head of technical strategy at Fundstrat, U.S. Treasury yields continue to hold significant importance as a potential catalyst for stock indices. Newton believes that in the upcoming months, yields will experience a decline. However, before this decline, they might witness a further surge. In the scenario where yields rise rapidly, Newton asserts that this sudden ascent could potentially alarm stock indices.
