The wait for China’s stock rally restart was met with disappointment on Tuesday as Beijing policymakers provided only a high-level overview of stimulus plans after the country’s week-long holiday. The lack of specific details on China’s aggressive stimulus measures left investors wanting more, leading to a surge followed by a quick pullback in mainland stock indexes.
In contrast, Hong Kong saw a decline in shares, with the Hang Seng Index dropping more than 10% at one point. Initially thought to be a catch-up play for Chinese stocks, it became evident that the markets were let down by the lack of clarity from Beijing.
This negative sentiment in China set the tone for Europe’s market open, with EuroSTOXX 50 futures falling by 0.8% and FTSE futures down by 0.5%. The economic calendar for the day is light, shifting the focus primarily on developments in China, along with concerns about escalating tensions in the Middle East and the reevaluation of Federal Reserve expectations.
Oil prices retreated on Tuesday, partly influenced by events in China and a slight pullback from the strong rally seen earlier in the week due to developments in the Middle East. The potential for supply disruptions has sent Brent and U.S. crude futures up by more than 10% this month, with no immediate signs of a reversal.
Following the stellar payrolls report on Friday, market sentiment regarding the Federal Reserve’s monetary policy stance shifted, with expectations now pointing to just another 50 basis points of rate cuts by December. This change in outlook has kept the benchmark 10-year Treasury yield above 4% on Tuesday, while the two-year yield remains near its highest level in over a month.
Key events to watch for on Tuesday include speeches from European Central Bank and Federal Reserve policymakers, as well as Germany’s industrial output data for August. Stay tuned for updates on how these developments could impact the markets.
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