U.S. 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 inversely to vacillations in benchmark bond yields as investors strive to calculate the trajectory for Federal Reserve policy given the stoic U.S. economy.

The 10-year Treasury yield
BX:TMUBMUSD10Y
again slipped early on Tuesday. The yield hit its highest level since 2007 last week, FactSet data showed. At the recent high, it neared 4.37%, but it was trading at 4.22% early 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 U.S. economic data over the rest of the week that may color the outlook for Fed policy.

In particular the Fed will be paying close attention to its preferred inflation measure, the July personal consumption expenditures price index, due on Thursday, followed by the August employment 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 from the Conference Board.

The stragglers of the second quarter earnings reporting 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.

Companies in focus

• Best Buy Co. Inc.
  BBY,
  +1.93%
  shares got a 1.7% boost in premarket trading Tuesday, after the consumer electronics retailer reported fiscal second-quarter results that beat expectations, while providing a mixed full-year outlook.

•  Nio Inc. shares are more than 6% lower in premarket trading, following second quarter earnings Tuesday morning from the electric car maker. Revenue fell in results that missed expectations, but the company offered an upbeat revenue outlook for the current quarter.

• AT&T
  T,
  +0.71%
  and Verizon Communications
  VZ,
  +0.60%
  stock each rose more than 1%, as Citi upgraded both telecommunications companies to buy/high-risk from neutral.

• Hawaiian Electric Industries
  HE,
  +44.62%
  stock rose more than 2%, extending Monday’s 45% surge when it denied being responsible for deadly wildfires.