U.S. equity futures moved higher on Tuesday as crude oil prices continued to fall, with Brent dropping below $100 a barrel and U.S. crude futures declining by more than 2%.
Reports indicated that Middle Eastern crude exports were moving back toward levels recorded before the Iran conflict, although risks to regional shipping remained.
Saudi Aramco also cut its November official selling prices for crude delivered to Asia by the largest amount in six years as oil flows recovered following earlier disruptions.
The G7’s planned release of 100 million barrels from emergency reserves added to the developments affecting the oil market.
Treasury Yields Retreat From Multi-Decade High
Treasury yields declined on Tuesday, with the benchmark 10-year yield moving lower after reaching its highest level since April 2002 during Monday’s session.
Markets were also awaiting minutes from the Federal Reserve’s latest policy meeting for further information about officials’ views ahead of the next interest rate decision later this month.
Recent inflation and employment figures have reduced expectations for an immediate rate increase. August’s annual consumer price growth was below economists’ forecasts, while September employment growth was weaker than anticipated.
CME Group’s FedWatch Tool indicated a 21.6% implied probability of a quarter-point rate increase later this month, down from 70.9% a week earlier.
Longer-term Treasury yields had nevertheless continued to rise during Monday’s session despite the reduction in expectations for a near-term increase in the federal funds rate.
“That reinforces the idea that the long-end sell-off is being driven by more than monetary policy: elevated real yields, heavy borrowing and competition for capital continue to demand a higher term premium,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
She added, “For equities, this creates an unusual divergence as growth stocks are rallying because Fed expectations have softened, while the risk-free rate against which those valuations are judged remains exceptionally high.”
Nasdaq Closes at Record as U.S. Stocks Advance
The major U.S. equity indices finished Monday higher, although they gave back part of their earlier gains before the close.
The Nasdaq rose 286.45 points, or 1.1%, to a record closing level of 27,477.31. The S&P 500 added 51.23 points, or 0.7%, to 7,773.95, while the Dow Jones Industrial Average increased 90.94 points, or 0.2%, to 51,267.90.
The session followed U.S. inflation and employment reports that reduced market expectations for another Federal Reserve rate increase later this month.
ISM Services PMI Eases to 54.9
U.S. services activity continued to expand in September, although the pace moderated from the previous month.
The Institute for Supply Management’s services PMI came in at 54.9, compared with 55.4 in August and economists’ expectations of 55.0. Readings above 50 indicate an expansion in activity.
Brokerage stocks were among Monday’s gainers, with the NYSE Arca Broker/Dealer Index advancing 3.6%. The Philadelphia Oil Service Index rose 3.1% despite the decline in crude prices.
Biotechnology, oil producer and software stocks also recorded gains, while airline shares moved lower.
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