Stock futures hold recent gains as easing Treasury yields underpin sentiment

What’s driving markets

Stock market moves of late have been quite tightly correlated to vacillations in benchmark bond prices as investors strive to calculate the trajectory for borrowing costs given the stoic U.S. economy and the Federal Reserve’s determination to push inflation to its 2% target.

The 10-year Treasury yield
BX:TMUBMUSD10Y
again slipped early on Tuesday.

Talk of more stimulus for China’s economy helped markets in Asia and further underpinned sentiment, according to analysts.

“Equity futures continue to bounce back post last Thursday’s ugly session led by cyclical sectors such as technology (semiconductors) and industrials (capital goods). Hang Seng futures are up additionally 2% this morning increasing the likelihood of a tactical turnaround in China,” said Peter Ganry, head of equity strategy at Saxo Bank.

Mark Newton, head of technical strategy at Fundstrat, remained wary, however: “If yields begin to move back to new monthly highs (although I expect any such move to prove short-lived) that would likely spook U.S. equities, and it’s important not to rule that out just yet.”

The moves come as traders await an important batch of economic data over the rest of the week that may color the outlook for Fed policy.

The central bank in particular will be paying close attention to its preferred inflation measure, the July personal consumption expenditures price index, due on Thursday, followed by the August nonfarm payrolls data on Friday.

Before then, U.S. economic updates set for release on Tuesday include the S&P Case-Shiller home price index for June, due at 9 a.m. Eastern, followed at 10 a.m. by the job openings, or JOLTS, survey for July and the August reading on consumer confidence.

The stragglers of the second quarter earnings season are still coming in, with Best Buy
BBY,
+1.93%,
Bank of Montreal
BMO,
+1.61%,
J.M. Smucker
SJM,
+0.56%
and Hewlett Packard
HPE,
+1.02%
among those releasing results on Tuesday.