US futures turn positive as Middle East mediation advances

US futures turn positive as Middle East mediation advances
(Cash-market closes are for Friday, 23 October, US Eastern Time; futures, European market and commodity quotes are data verified against approved sources before 16:30 Hong Kong time on 26 October. European cash markets opened at 16:00 Hong Kong time and had been open for only about half an hour at the time of this brief; opening quotes for European cash markets verified against approved sources were not yet available for this edition.)

On Friday, the S&P 500 fell 0.52% to 7623.68 points, the Dow fell 1.23% to 52215.16 points (-652.82 points), the Nasdaq fell 0.21% to 25955.34 points, and the equal-weight S&P ETF (RSP) fell 0.77% to $216.54 (The Wall Street Journal). Futures turned positive as trading opened Sunday evening: Barron's reported that just after 18:00 US Eastern Time on Sunday, S&P 500 futures were up 0.4%, Nasdaq 100 futures were up 0.6%, and Dow futures were up 0.3% (about 165 points) (Barron's). The 10-year US Treasury yield closed Friday at 4.987% and retreated Monday to about 4.97%, below 5%; Brent for December delivery traded Monday at $114.57, down 1.8%, and WTI at $100.96, down 2.2% (The Wall Street Journal); spot gold traded Monday at 05:44 GMT at $4010.51 per ounce, up 0.4% and back above $4000 (Reuters); the US Dollar Index closed Friday at 101.81, up about 0.2%, and weakened Monday. A 16:30 quote for the index verified against approved sources was not yet available for this edition.

Market overview
Monday midday's market mood can be summed up in one sentence: a sigh of relief, but the alert has not been lifted. The strike did not materialise on Sunday, and Qatari mediators entered Tehran that day; oil consequently gave back about $2 from its six-month high of $116.72, while US and European futures both turned positive. But interceptions and counterstrikes involving Saudi Arabia continued the same day. The Wall Street Journal reported Monday that the Saudi-led coalition said it intercepted a Houthi ballistic missile aimed at Riyadh and took action against missile launchers and storage facilities in Yemen (The Wall Street Journal). Today's retreat therefore looks more like a “partial refund” of the risk premium than the removal of the risk itself: oil remains above $110, the 10-year yield is still stuck around 5%, and none of the market's real tests has yet been faced ahead of Wednesday's FOMC decision and the same-day Microsoft and Alphabet earnings. Tonight, first watch whether Verizon's premarket results can steady telecom stocks, then whether the Chicago and Dallas Fed's two regional readings add context to the question of a rate hike or a hold.

I. Iran: No strike Sunday, mediators enter Tehran, but fighting continues on the Saudi front Monday

• In an interview on Fox News' Sunday Morning Futures on Sunday, Trump framed the choice as “decision time”: make a deal or “finish it off.” Bloomberg also reported that Trump had previously suggested US strikes on Iran could resume after the 3 November midterm elections (Bloomberg). Moving the timetable from “Sunday” to “after the midterm elections” was the weekend's most important de-escalation signal, but “finish it off” remains on the table, so a cooling of tensions is not their removal.
• There was substantive diplomatic movement Sunday: Reuters reported that Qatari mediators arrived in Tehran to help ease regional tensions in coordination with the United States (Reuters). The Wall Street Journal added Monday that Middle Eastern mediators were seeking to restart talks between Washington and Tehran, while the United States was also preparing further military options against Iran (The Wall Street Journal). Talks and military options are on the table at the same time, which is the fundamental reason oil has fallen only 2% rather than returning below $100.
• Logistics in the Strait of Hormuz are also leaving room for a retreat: The Wall Street Journal cited US Central Command as saying Sunday that US forces had supported the passage of more than 3000 merchant vessels through the waterway over the past six months and helped Gulf partners export more than 1.5 billion barrels of crude since the summer (The Wall Street Journal). Ships are still moving and oil is still flowing—but as long as missiles are flying toward Riyadh, the market is unwilling to eliminate the war premium all at once.

II. Europe and Asia: European futures open higher, Asia falls first

• Ahead of the European open, the signal pointed to a higher start: Morningstar's Dow Jones European morning briefing said Monday that European equity futures were rising as investors prepared for a busy week of central bank meetings, while US Treasuries fell, the dollar weakened, gold rose and oil prices fell (Morningstar (Dow Jones)). The logic behind Europe's higher open is the same as for US futures: falling oil prices first eased inflation expectations, while the uncertainty of central bank week will be priced after Wednesday.
• Asian markets fell first on Monday: The Wall Street Journal reported that Asian stocks declined as risk appetite weakened. The Shanghai Composite fell 0.9%, South Korea's Kospi fell 0.7%, and the Nikkei fell 0.4%; the Hang Seng rose 0.4%, but its technology index fell 0.4% (The Wall Street Journal). The Journal cited Phillip Nova's Priyanka Sachdeva as saying the drop in oil showed some technical profit-taking after last week's sharp rally; Brent rose 6.2% last week (The Wall Street Journal). The divergence between Asia's earlier decline and the initial rise in US and European futures shows that Asia was trading on Friday's closing mood, while US and European markets were trading on Sunday's news developments.
• There was no new cash-market news on France on Monday, and this edition had not obtained 16:30 quotes for the French 10-year yield or the France-Germany spread. The next scheduled dates remain unchanged: another protest on Saturday, 31 October, and a general strike on 5 November. For Europe on Monday, the focus remains whether the French spread retreats from above 5% and around 175 basis points: a retreat would give Europe's sovereign-debt storm temporary relief; widening would mean the trigger for last Thursday's surge in US Treasury yields remains.

III. Bonds, the dollar and commodities: The 10-year yield returns below 5%, gold back above $4000, oil still above $110

• Monday's mix was a notch milder than Friday's, but none of the components truly turned a corner: the 10-year yield edged down from 4.987% to around 4.97%, still near 5%; gold rebounded from around $3997 Friday to $4010.51. Reuters cited Capital.com's Kyle Rodda as saying the rise was “primarily relief from falling oil prices, but gains could easily be capped as markets position for the FOMC decision in a few days” (Reuters).
• The scale of oil's retreat needs to be seen against last week's gains: Brent fell 1.8% Monday to $114.57, and WTI fell 2.2% to $100.96, while Brent rose more than 6% last week and closed Friday at a nearly six-month high of $116.72 (The Wall Street Journal). Giving back about $2 reverses only a small part of last week's gain—oil remains above $110, and pressure on inflation expectations has not lifted.
• The latest gauge of rate expectations comes from Reuters' Monday report: traders broadly expect the Fed to hold rates this week, while the probability of a hike in December is 77% (Reuters). Barron's reported Sunday evening that the market assigned a probability of more than 90% to a hold this week (Barron's). A hold this week is almost the consensus; the real question is whether Wednesday's decision statement and press conference will open or narrow the door to a hike in December.

IV. Stocks and sector moves, including earnings: Energy's outperformance remained Friday's defining feature; Verizon tests telecoms first tonight

• Friday's pattern remained unchanged: energy led gains and reached a record high, with Chevron up 2.9% and ConocoPhillips up 3.6%; by contrast, consumer staples fell 1.92%, communication services fell 1.78%, consumer discretionary fell 1.66%, and financials fell 1.32%. American Express fell 3.7% to $313.22: Q3 earnings beat expectations and full-year guidance was raised, but the company announced job cuts of about 5%, and its shares fell rather than rose.
• Telecom stocks remain tonight's first test: after news that SpaceX was seeking rights to use around 80 thousand cell sites and could become the fourth nationwide US wireless operator, AT&T and T-Mobile each fell nearly 8% Friday, while Verizon fell 1.2%; tower operators Crown Castle rose 9% and American Tower rose 4%. Verizon reports first before the US market opens tonight. Whether telecom shares can stabilise ahead of the results is the first question for the opening; Cadence reports after the close, and its commentary on orders in the chip-design toolchain is also worth watching.
• Technology stocks stabilised relatively on Friday: the Nasdaq outperformed the broader market, chip stocks stopped falling and rebounded, with Micron up 2.5%, AMD up 1.7% and Microsoft up 0.7%. Barron's weekly review characterised Friday as “the AI selloff cooled, but the rest of the market paid the price”: the Dow fell 653 points, the S&P fell 0.5% and the Nasdaq fell only 0.2%, a reversal of Thursday's rotation, while high oil prices “didn't help” (Barron's). The Russell 2000 fell 0.29% Friday to 2775.90 points; small-cap stocks were not spared either.

V. AI news: This week puts hyperscalers on the hot seat; whether cloud revenue can cover the bill is key

• Reuters titled its weekly preview “Hyperscalers on the hot seat”: about a third of S&P 500 companies report this week, with Alphabet and Microsoft on Wednesday and Amazon on Thursday. The market is watching capital expenditure guidance and returns on AI investment, rather than revenue growth alone (Reuters). Hyperscalers' capital expenditure is expected to reach about $800 billion this year, boosting profits across the AI buildout chain, but rising financing costs have made the market question the sustainability of that spending (Reuters).
• Alpine Macro chief equity strategist Nick Giorgi says the market “no longer gives companies that spend heavily the benefit of the doubt.” That is healthy in itself, but still implies short-term pain (Reuters). BakerAvenue chief strategist King Lip says earnings will determine whether this technology pullback is a buying opportunity or the start of a deeper correction: “All we need is another round of really strong earnings” (Reuters).
• The fundamental backdrop is not weak: among the more than 100 companies that have reported, S&P 500 third-quarter earnings growth exceeded 32% year on year (LSEG IBES data, via Reuters). Citi's Scott Chronert wrote in Barron's weekly review that if cloud revenue growth can build further on the strong second-quarter figures, sentiment could stabilise; he maintained his year-end S&P 500 target of 8100 points (Barron's). As of this Monday edition, no major new announcements from AI companies had been obtained.

VI. Calendar ahead (Hong Kong time)

• 26 October (Monday), tonight: Verizon before the US open; Cadence after the US close; 20:30 Chicago Fed National Activity Index; 22:30 Dallas Fed Manufacturing Survey.
• 27 October (Tuesday): Israeli general election; 22:00 Conference Board consumer confidence for October; Coca-Cola, Boeing and UPS before the open; Visa and Robinhood after the close.
• 29 October (Thursday), 02:00 early morning: FOMC decision (the market expects rates to remain at 3.75–4.00%, with no dot plot at this meeting; the probability of a hold this week is above 90%, and the probability of a hike in December is about 77% (Reuters)); 02:30 Fed chair's press conference; Microsoft and Alphabet report after the close early the same morning (after Wednesday's US Eastern close). Barron's weekly preview also noted that this is the busiest week of third-quarter earnings, with about a third of S&P 500 companies due to report. The FOMC meets Tuesday through Wednesday, and the market expects rates to remain unchanged (Barron's).
• 29 October (Thursday): 20:30 preliminary Q3 GDP (market expects annualised growth of 3.2%, above the previous 2.2%) and September PCE (headline expected to rise 0.5% month on month and 3.7% year on year, above the previous 3.4%; core expected to rise 0.3% month on month); 21:15 ECB rate decision; Eli Lilly and Mastercard before the open; Amazon and Intel after the close.
• 30 October (Friday): Bank of Japan decision; 20:30 Employment Cost Index (market expects 0.8%, below the previous 0.9%); Exxon Mobil and Chevron before the open.
• 31 October (Saturday): Another protest in France (called by unions and the Yellow Vests; CGT will decide whether to participate during the week); 3 November (Tuesday): US midterm elections; 5 November (Thursday): French unions' general strike.