S&P 500 futures firmer as Treasury yields slip and Fed meeting starts

What’s driving markets

Lower benchmark borrowing costs were helping S&P 500 index futures hold most of Monday’s 1.2% bounce off five-month lows.

The 10-year Treasury yield
BX:TMUBMUSD10Y
dipped to 4.81%, near the bottom of a two-week range, after only a minor tweak to monetary policy by the Bank of Japan was seen leaving Japanese government bonds relatively unattractive and thus supporting demand for U.S. debt. The U.S. dollar
USDJPY,
+1.13%
jumped back above ¥150.

News on Monday that the U.S. Treasury was planning to borrow less than expected this quarter and would thus have to issue less paper was also seen underpinning bond prices. The Treasury will announce its third quarter refunding program on Wednesday.

Another factor helping suppress Treasury yields, and therefore possibly helping sentiment in equities, was data showing manufacturing in China slipped back into contraction unexpectedly in October.

Such signs of a struggling global economy will be in the Federal Reserve’s thinking as it begins its two-day policy meeting on Tuesday. It is expected midweek to leave its policy interest rates unchanged at a range of 5.25% to 5.50%.

“In the absence of a surprise rate decision, or a surprise forward guidance about a rate decision, what will really, really matter this week…is the US debt situation, and the Treasury Department’s quarterly announcement on details regarding the size and the maturity of the bonds that they will issue to borrow that extra $776 billion this quarter,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Meanwhile, the third-quarter earnings reporting season rumbles on. Companies reporting results on Tuesday include Pfizer
PFE,
+1.46%,
Caterpillar
CAT,
+1.51%
and Amgen
AMGN,
+0.62%
before the opening bell rings on Wall Street, followed by Advanced Micro Devices
AMD,
-0.26%,
Paycom Software
PAYC,
-0.12%
and Caesars Entertainment
CZR,
+2.43%.

U.S. economic updates set for release on Tuesday include the third-quarter employment cost index, released at 8:30 a.m. Eastern, the August S&P Case-Shiller home price index at 9 a.m., and consumer confidence for October at 10 a.m.

Companies in focus

• Caterpillar Inc. 
  CAT,
  +1.51%
  shares sank 5.6% in premarket trading Tuesday, reversing an earlier gain of as much as 4.7%, after the construction and mining equipment maker reported a big third-quarter profit beat, boosted by both higher prices and higher volume, but provided a tepid fourth-quarter sales outlook.

• JetBlue Airways Corp.’s
  JBLU,
  +1.69%
  stock fell 7% in premarket trades after the carrier warned it would post a wider-than-expected fourth-quarter loss, while it missed analyst estimates for its third-quarter loss and revenue.

• Pfizer Inc. 
  PFE,
  +1.46%
  edged dow 0.4% in premarket trading Tuesday, after the drug maker reported that it swung to a wider-than-expected third-quarter loss and revenue fell more than forecast, amid weakness in COVID products, but still affirmed its full-year outlook. 

• BP
  BP,
  -0.75%

  BP,
  -4.23%
  dropped 3.7% on Tuesday after the British oil major fell short of analysts’ expectations in posting a 60% drop in its third-quarter profits, following a weak performance from its gas trading division.