Fed rate hold bets and tech recovery lift Dow Jones futures

• Expectations of unchanged Fed interest rates in October support gains in US index futures.
• Monday’s rally in technology heavyweights and semiconductor shares helped the S&P 500 and Nasdaq recoup losses.
• A crowded Tuesday earnings calendar, featuring Netflix, GM and United Airlines, is becoming traders’ next focus.

A 0.38% rise takes Dow Jones futures to around 52,380 in Tuesday’s European trading. S&P 500 futures are 0.13% higher at roughly 7,740, whereas Nasdaq 100 futures are down 0.12% at about 29,690.

Growing expectations that the Federal Reserve (Fed) would hold interest rates steady lifted US equity futures. The CME FedWatch tool shows that Fed funds futures traders anticipate no change at the October policy meeting, but assign an 89.4% probability to a December rate increase.

While voicing confidence in the US economy’s resilience last week, Fed Chair Kevin Warsh gave no specific indication of when further rate changes might come or how likely they were.

A rebound in technology stocks supported Wall Street at the start of a mixed week’s trading. In Monday’s regular US session, the Dow Jones slipped 0.07%. By contrast, the S&P 500 gained 0.41% and the Nasdaq Composite added 1.11%, recovering from the previous week’s steep sell-off as concerns about AI financing mounted.

Gains in Micron, Nvidia, SanDisk, Amazon and Tesla put chipmakers and other mega-cap shares at the forefront of the rebound. Attention is now turning to Tuesday’s substantial corporate reporting schedule. General Electric, Netflix, Raytheon Technologies, United Airlines and General Motors are among the companies due to release earnings.

US yields rise on AI recovery as markets price in further Fed tightening

According to Deutsche Bank strategists, the steadier performance of AI-related shares “also pushed US Treasury yields higher, as it countered fears about an AI-related slowdown.” Real yields were the principal driver, they explain, with “higher real yields” responsible for “the bulk of the rise in Treasury yields yesterday, rather than inflation breakevens.” Consequently, “Treasury yields saw a consistent rise across the curve, with the 2yr yield (+6.5bps) up to 4.77%, whilst the 10yr yield (+6.6bps) rose to 5.14%.” Turning to the policy implications, Deutsche Bank says “optimism on the growth side” influenced expectations as investors “priced in slightly more rate hikes for the months ahead,” leaving “74bps of hikes…priced in by the June 2027 meeting at the close, up +7.7bps relative to Friday.”