U.S. stock futures pointed to a higher open on Tuesday as crude oil prices extended their decline, with Brent futures falling below $100 a barrel and U.S. crude futures dropping more than 2%.
The move in oil followed reports that Middle Eastern crude exports were recovering toward levels seen before the Iran conflict, despite continued risks affecting shipping in the region.
Saudi Aramco also lowered its November official selling prices for crude supplied to Asia by the largest amount in six years as regional oil flows recovered following earlier disruptions.
Additional pressure on crude prices followed the G7’s announcement of a 100-million-barrel emergency stock release.
Treasury Yields Fall Ahead of Federal Reserve Minutes
U.S. Treasury yields moved lower alongside oil prices, with the benchmark 10-year yield retreating after reaching its highest level since April 2002 on Monday.
Investors were also awaiting minutes from the Federal Reserve’s latest monetary policy meeting, which could provide further information about policymakers’ views ahead of the central bank’s next interest rate decision later this month.
Expectations for another rate increase have declined following recent U.S. inflation and employment data. The annual rate of consumer price growth in August came in below economists’ forecasts, while September employment growth was weaker than expected.
According to CME Group’s FedWatch Tool, the implied probability of a quarter-point Federal Reserve rate increase later this month fell to 21.6% from 70.9% a week earlier.
Despite the change in rate expectations, longer-term Treasury yields had continued to rise during Monday’s session.
“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 Reaches Record Closing High
U.S. stocks finished higher on Monday, although the major indices ended below their session highs.
The Nasdaq gained 286.45 points, or 1.1%, to close at a record 27,477.31. The S&P 500 advanced 51.23 points, or 0.7%, to 7,773.95, while the Dow Jones Industrial Average rose 90.94 points, or 0.2%, to 51,267.90.
The gains followed recent inflation and employment reports that reduced market expectations for an interest rate increase later this month.
U.S. Services Activity Continues to Expand
Separate economic data showed a modest slowdown in U.S. services activity during September.
The Institute for Supply Management’s services PMI declined to 54.9 from 55.4 in August. Economists had expected a reading of 55.0. A reading above 50 indicates expansion in the sector.
Among Monday’s sector moves, the NYSE Arca Broker/Dealer Index rose 3.6%, while the Philadelphia Oil Service Index gained 3.1% despite lower crude prices.
Biotechnology, oil producer and software stocks also advanced, while airline stocks declined.