U.S. stock-index futures pointed to a lower start Tuesday, with analysts blaming rising tensions between the U.S. and China as House Speaker Nancy Pelosi prepared to visit Taiwan.
- Futures on the Dow Jones Industrial Average YM00, -0.53% fell 176 points, or 0.5%, to 32,591.
- S&P 500 futures ES00, -0.58% dropped 25.50 points, or 0.6%, to 4,095.
- Nasdaq-100 futures NQ00, -0.74% declined 102.50 points, or 0.8%, to 12,860.
Stocks ended a seesaw session slightly lower on Monday, with the Dow DJIA, -0.14% falling less than 50 points, or 0.1%, while the S&P 500 SPX, -0.28% lost 0.3% and the Nasdaq Composite COMP, -0.18% ticked down 0.2%.
What’s driving the market
Global equity markets fell as local news reports said Pelosi was set to arrive in Taiwan Tuesday night local time. Beijing, which sees Taiwan as part of its territory, has threatened “serious consequences” if Pelosi’s visit goes ahead as planned.
“The events schedule is dominated by one question: will U.S. House Speaker Pelosi arrive in Taiwan today as has been flagged, and how will China respond?” wrote Marc Ostwald, chief economist and global strategist at ADM Investor Services International, in a note.
Pelosi would be the highest-ranking elected U.S. official to visit the island in 25 years and comes as part of a swing taking the speaker to Singapore, Malaysia, South Korea and Japan for talks on a variety of topics, including trade, COVID-19, climate change and security.
“The U.S. and Taiwan have colluded to make provocations first, and China has only been compelled to act out of self-defense,” Chinese Foreign Ministry spokesperson Hua Chunying told reporters Tuesday in Beijing.
The White House on Monday criticized Beijing’s response, saying the U.S. “will not take the bait or engage in saber-rattling” and has no interest in increasing tensions with China.
“The most likely outcome is that Pelosi visits Taiwan, there’s some show of force by the Chinese military (like crossing the midpoint of the Taiwan Strait), escalated rhetoric, but no actual conflict,” said Tom Essaye, founder of Sevens Report Research, in a note.
“This outcome won’t derail the rally (as it’s being driven by Fed anticipation). But this is a market that does not need additional headwinds, and escalation in tensions between the U.S. and China will only serve as an additional headwind on stocks — something that won’t reverse the rally but could pile on if the outlook turns less rosy,” he wrote.
U.S. stocks rose sharply in July, bouncing back from 2022 lows set in June. Stocks fell into a bear market this year as the Federal Reserve has aggressively raised interest rates in an effort to curb inflation that continues to run at its hottest in around four decades.
The sharp tightening has stirred recession fears, though stocks have found support on ideas prospects of a slowdown will lead the Fed to slow the pace of rate increases or begin cutting rates in 2023 — a prospect that many economists and analysts see as dubious.
Investors were also preparing for another busy day of earnings, which have so far come in better than feared.
Data on U.S. June job opening and labor turnover were slated for 10 a.m. Eastern. Figures on auto sales from major automakers were expected throughout the day.
Companies in focus
- Caterpillar Inc. CAT, -1.71% shares fell 2% in premarket trade after the construction and mining equipment maker reported second-quarter profit that beat expectations but sales that came up short, as higher pricing and sales volume were partially offset by unfavorable currency impacts.
- TD Bank Group TD, -0.69% said Tuesday it would buy investment bank Cowen Inc. COWN, +1.20% for $1.3 billion, or $39 a share, a premium of about 10% over its closing price of $35.49 a share on Monday and a purchase price multiple of 8.1 times Cowen’s estimated 2023 earnings. Cowen shares rose 6.8%, while TD shares edged up 0.3%.