Market Snapshot: Dow futures up nearly 400 points to extend strong start to fourth quarter

What’s driving markets

The S&P 500 index was in line Tuesday to extend the previous session’s 2.6% per cent bounce off 22-month lows.

There were multiple factors driving the rally at the start of the week, said Jim Reid, strategist at Deutsche Bank, including oversold conditions and easing market tensions in Europe, “but the main one was growing speculation that central banks could soon pivot towards a more dovish stance, particularly after the market turmoil over the last couple of weeks”.

The Fed, alongside most of its developed-economy peers, in the past several months has been hiking interest rates aggressively to combat inflation running at 40-year highs, and the consequent surge in bond yields has triggered a bear market across equity benchmarks.

Now some investors are hoping the peak of this monetary tightening cycle may be in sight.

Supporting this narrative was a weak U.S manufacturing survey on Monday, which Barclays noted showed easing costs pressures amid shorter delivery delays and order backlogs.

The U.S. ISM manufacturing index described expansion slowing faster than investors expected, and “gave a positive spin to the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“I believe that this is an important sign that despite the Federal Reserve officials’ strongly hawkish rhetoric, many investors no longer believe that the Fed could continue tightening at the current speed. That’s a good ingredient for a global market rebound,” Ozkardeskaya added.

Adding to this notion was news from Down Under, where the Reserve Bank of Australia delivered a less-than-expected 25 basis point interest rate hike at its meeting on Tuesday, helping stocks in Asia to move higher and bond yields lower.

See: What does a pivot look like? Here’s how Australia’s central bank framed a dovish surprise

“The cross-asset reaction to the RBA’s below-consensus 25bp rate hike is critical from a risk-taking perspective to determine if markets can bring relief from the first ‘soft’ pivot from a major central bank following the recent spike in cross-asset volatility,” said Stephen Innes, managing partner at SPI Asset Management.

“While inflation has yet to peak in Australia, the RBA’s more cautious hiking pace indicates that it is prepared to wait for the effects of monetary policy tightening already enacted to emerge more fully,” Innes added.

Investors were hoping such caution may have to be adopted by the Fed. The policy-sensitive 2-year Treasury yield TMUBMUSD02Y, 4.088%, which ended last week around 4.28%, dipped 9 basis points in early Tuesday trading to 4.018%.

U.S. economic updates set for release on Tuesday include the job openings and quits data, alongside factory orders, all for August and all due at 10 a.m. Eastern Time.

Fed speakers include Fed Gov. Philip Jefferson at 11:45 a.m. and San Francisco Fed President Mary Daly at 1 p.m.

Companies in focus

• Online secondhand-fashion marketplace Poshmark Inc. POSH, +13.39% has agreed to be bought by South Korean internet company Naver in a $1.2 billion deal, the companies announced late Monday. Poshmark shares jumped over 13% in premarket trade.