Global stock futures declined early Tuesday as surging Treasury yields, with the 10-year note breaching 5% for the first time since 2007, and escalating oil prices unsettled investors. Compounding market anxieties were a sell-off in AI-related stocks following industry executive warnings and the anticipation of a likely quarter-point rate hike from the Federal Reserve this week.
Global financial markets opened on a cautious note Tuesday, with stock futures dipping as investors weighed the Federal Reserve's impending policy decision against a backdrop of surging Treasury yields. The benchmark 10-year Treasury note soared to its highest level since 2007, climbing 10 basis points to 5.022% by early trading. This significant bond market movement, where yields and prices move inversely, immediately impacted equity sentiment.
Futures for major U.S. indices reflected this apprehension: S&P 500 futures fell 0.38%, Dow Jones Industrial Average futures shed 240 points (0.45%), and Nasdaq 100 futures declined 0.46%.
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The past weeks have seen global government bond yields command significant attention from equity markets. A widespread sell-off in government debt reflects growing anxieties that a hypothetical U.S.-Iran conflict could exacerbate inflation and compel central banks to adopt a more aggressive, hawkish stance.
Monday's trading session saw major indices retreat: the Dow Jones Industrial Average fell 152 points (0.3%), the S&P 500 declined 0.5%, and the Nasdaq Composite slipped 0.6%. Crucially, the 10-year Treasury yield had already briefly surpassed 5% on Monday, hitting a level not seen since October 2023.
Adding to market concerns, oil prices surged following Saudi Arabia's decision to close a vital pipeline circumventing the Strait of Hormuz. This action, amid existing tight market conditions, pushed Brent crude futures above $105 a barrel and West Texas Intermediate (WTI) crude past $101. Early Tuesday, oil continued its ascent, with November Brent futures gaining 1.8% to $107.55 per barrel, and WTI futures rising nearly 2% to $103.36.
The confluence of rising Treasury yields and escalating oil prices is intensifying focus on the Federal Reserve's policy decision, due Wednesday. Futures markets indicate a high probability (approximately 92%) of a quarter-point rate hike, moving the target range from 3.5%-3.75% to 3.75%-4.0%. Christopher Hodge, chief economist of the U.S. at Natixis CIB Americas, commented, "We expect the Fed to, for the first time in the [Chairman Kevin] Warsh era, raise its policy rate to an upper bound of 4.0% at this week's meeting." Hodge also anticipates Chairman Warsh will underscore the decision's standalone nature, ensuring the Fed retains "maximum flexibility to respond to shocks."
Adding to the market's woes, a notable sell-off has hit artificial intelligence (AI) related stocks. This follows Anthropic CEO Dario Amodei's call for a slower pace in AI development and OpenAI CEO Sam Altman ruling out an IPO this year, both citing concerns over AI safety. Consequently, prominent AI-linked stocks experienced significant declines: Nvidia dropped 3%, Corning tumbled 13%, and the iShares AI Innovation and Tech Active ETF (BAI) fell nearly 4%.
Barclays strategists, in a Tuesday morning note, highlighted that elevated interest rates are already straining valuations and posing a growing threat to equity portfolios. While earnings have offered some resilience, they warned that the 5% threshold for 10-year yields historically signifies a critical turning point where higher rates become a sustained drag on equities. "With inflation risks lingering and yields moving higher, the cushion provided by earnings growth may become increasingly difficult to maintain," they stated. Despite this caution, Barclays maintains a constructive outlook on equities, underpinned by ongoing earnings momentum, but acknowledges the heightened risk of a "sharper repricing" should yields climb significantly higher.
Meanwhile, Asia-Pacific markets presented a mixed picture on Tuesday. Japan’s Nikkei 225 remained flat, while the Topix dropped 0.74%. South Korea’s Kospi also fell 0.74%, though its small-cap Kosdaq gained 1.07%. Australia’s S&P/ASX 200 decreased by 0.8%, and Hong Kong’s Hang Seng Index was down 0.2%. Mainland China’s CSI 300 saw minimal change.
European stocks open lower
European equities commenced Tuesday’s trading session in negative territory. The pan-European Stoxx 600 dipped 0.6%, with losses widespread across most sectors and major bourses. Financial services stocks led the decline, reacting to the U.S. 10-year Treasury yield surpassing 5% and strong market expectations for a Federal Reserve rate hike later in the week.
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— Chloe Taylor
Global bonds follow Treasurys lower
Global bond markets mirrored the sell-off in U.S. Treasurys on Tuesday, after the U.S. 10-year Treasury yield surged past 5% to its highest level since 2007. By 2:45 a.m. ET, yields on government bonds from the U.K., France, Germany, and Japan had all moved higher, reflecting inverse price action. Specifically, while U.S. 10-, 20-, and 30-year government bond yields jumped approximately 6 basis points, Japan's 30-year yield surged 8 basis points. The U.K.'s 20-year gilt added 4 basis points, and French and German 30-year bond yields rose by nearly 3 basis points.
— Chloe Taylor
CNBC Daily Open: A ‘hoax,’ a sell-off and a dilemma for Warsh
The Federal Reserve Chairman Kevin Warsh faces a complex dilemma this week: raise rates and risk political backlash from President Donald Trump, or hold rates and face market criticism for appearing out of touch. This decision is further complicated by the 10-year Treasury yield hitting a 2007 high, oil prices sustaining triple-digit levels, and a substantial sell-off in AI stocks, wiping trillions from market darlings.
— CNBC Staff (referencing a CNBC Daily Open article)
10-year Treasury yield rises above 5%
The yield on the benchmark 10-year Treasury note officially breached the critical 5% threshold on Tuesday morning, reaching a post-2007 peak. By 1:25 a.m. ET, the yield was trading 6 basis points higher at 5.025%. This move underscores persistent selling pressure on U.S. government debt, with bond yields and prices moving inversely. Read more here.
— Chloe Taylor
China’s August retail sales miss forecast while investment slump deepens, piling pressure on Beijing
China’s economic data for August presented a challenging picture, with retail sales growth missing forecasts and the investment slump deepening, intensifying pressure on Beijing. Retail sales increased by only 0.4% year-on-year, a slowdown from July’s 0.6% and below economists’ 0.8% prediction. Industrial output, however, outperformed expectations, expanding by 5.2% against a 4.8% forecast, up from 4.5% in July.
Urban fixed-asset investment, crucial for property and infrastructure, shrank 7.2% for the first eight months of the year, a steeper decline than the 6.7% fall in the January-July period. The urban survey-based unemployment rate slightly increased to 5.3% in August from 5.2% in July. National Bureau of Statistics spokesperson Fu Linghui attributed this rise to the graduation season but noted stable employment in manufacturing and growth in tech and hospitality sectors.
The statistics bureau acknowledged the "intensified adverse impact of (the) external environment" and an "acute" domestic imbalance of "strong supply and weak demand," indicating ongoing operational difficulties for some businesses.
— Anniek Bao, Evelyn Cheng
Oil extends gains following Houthi strikes on Saudi Arabia
Oil prices continued their upward trajectory on Tuesday, fueled by fresh reports of Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf. Brent crude futures for November delivery climbed 1.25% to $107.00 a barrel, while U.S. West Texas Intermediate (WTI) futures for October advanced 1.27% to $102.68 per barrel.
Saudi Arabia’s closure of its critical East-West pipeline, which bypasses the Strait of Hormuz, after drone damage from Iraq, further exacerbated oil supply disruptions in an already tight market. Al Jazeera reported that the Saudi-led coalition in Yemen confirmed 13 civilians were injured on Monday due to ballistic missile and drone attacks launched by Houthi forces into Saudi Arabia.
— Justina Lee
10-year Treasury yield hovers near 5% with focus on Fed rate decision
The benchmark 10-year Treasury yield continued to hover just below the critical 5% mark early Tuesday, gaining approximately 3 basis points to 4.988% amid persistent selling pressure on U.S. government debt. The yield had briefly surpassed 5% on Monday, hitting its highest point since October 2023, before pulling back.
Market attention is now firmly fixed on the Federal Reserve’s upcoming policy decision, with a 25-basis-point rate hike widely anticipated. Komal Sri-Kumar, president of Sri-Kumar Global Strategies, cautioned CNBC that even a quarter-point Fed hike might not suffice to calm the bond market, especially with elevated energy prices and tariffs contributing to inflation. Sri-Kumar suggested a rate increase could "cause the long end yield to increase, cause the 10-year to go significantly over 5% again, and steepen the yield curve."
— Lee Ying Shan
Asia-Pacific markets fall in early trade
Early Tuesday trade saw declines across Asia-Pacific markets. Japan’s Nikkei 225 fell 0.25%, with the Topix also down 0.24%. South Korea’s Kospi declined 0.43%, and the small-cap Kosdaq saw a 0.33% drop. Australia’s S&P/ASX 200 was down 0.46%.
— Lee Ying Shan
Asia-Pacific markets set for subdued open after Wall Street declines overnight
Asia-Pacific markets were poised for a mixed opening on Tuesday, following Wall Street’s overnight decline. Investor sentiment was dampened by a sell-off in artificial intelligence stocks and persistently high Treasury yields. Japan’s Nikkei 225 was expected to fall, with its Chicago and Osaka futures trading at 63,185 and 63,220 respectively, against its previous close of 63,492.99.
Hong Kong’s Hang Seng Index futures indicated an opening at 25,028, higher than its last close of 24,917.6. Meanwhile, futures for Australia’s S&P/ASX 200 last traded at 8,734, compared to its previous close of 8,749.9.
— Lee Ying Shan
Shares of Dave & Buster’s fall after company posts surprise quarterly loss
Shares of Dave & Buster’s plummeted over 12% following a disappointing second-quarter earnings report. The entertainment company reported revenue of $544.1 million, falling short of FactSet analysts’ expectation of $556.8 million. Adjusted EBITDA also missed projections, coming in at $98.9 million against a consensus call for $120.4 million. Furthermore, Dave & Buster’s posted an unexpected adjusted loss of 27 cents per share, contrasting sharply with analysts’ anticipated profit of 18 cents per share. The company’s reported revenue saw a 2.4% decrease compared to the second quarter of fiscal 2025.
Darin Harper, the company’s chief executive officer, stated, "We are laser focused on returning to same-store sales and EBITDA growth, sharpening our margin management with cost saving initiatives, generating significant free cash flow, and delivering meaningful shareholder value."
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— Ananya Chetia
Stock futures are little changed on Monday
U.S. stock futures showed minor movements on Monday. S&P 500 futures edged up 0.07%, while futures linked to the Dow Jones Industrial Average saw a gain of 24 points (0.05%). Nasdaq 100 futures also advanced slightly by 0.08%.
— Ananya Chetia
