A Look at the Day Ahead in European and Global Markets by Rae Wee

Investors were disappointed on Tuesday as China's stock market failed to rally significantly after the mainland's week-long holiday. Beijing's NDRC announced confidence in meeting targets but did not provide the expected specifics on stimulus plans, causing a stark contrast between mainland and Hong Kong markets.

After an initial surge of 10% in key mainland stock indexes, gains were quickly pared. Meanwhile, the Hang Seng Index in Hong Kong fell over 10% at one point, reflecting disappointment over the lack of concrete stimulus details. This situation sets a negative tone for European markets, with stock futures in Asia declining—EUROSTOXX 50 futures slid 0.8%, and FTSE futures dropped 0.5%.

The economic calendar is light today, keeping attention focused on China, while geopolitical tensions in the Middle East and adapting Federal Reserve expectations loom in investors' minds. Oil prices fell on Tuesday, influenced partly by Chinese market developments and a pause after earlier gains due to the Middle East conflict, where Hezbollah's actions have raised supply disruption fears. Brent and U.S. crude futures are up over 10% this month, indicating a continuing upward trend.

Finally, a reality check for Fed rate expectations occurred after a strong payroll report last Friday, with current pricing suggesting only a 50 basis points cut by December. The 10-year Treasury yield remained above 4% while the two-year yield approached recently high levels.

Key Developments Influencing Markets

• European Central Bank and Federal Reserve policymakers to speak
• Germany industrial output data for August