Australia

Australian shares are set to fall at the open, following a mixed day in the US marked by bond yields surging and utilities tumbling. Investors refocus on US rates as Australians anticipate the RBA decision later today.

ASX futures were down 1.4% or 96 points as of 8:00am on Tuesday, suggesting a lower open.

US stocks ended mixed as higher Treasurys yields continue to become more attractive to certain investors who sold off utilities and other high dividend paying stocks. Defensive sectors like utilities and real estate were among the worst performing shares along with energy stocks that followed crude prices lower. Communications and tech stocks were the best performing sectors, which helped the Nasdaq post gains. DJIA fell 74 points to 33433, the S&P 500 was little changed at 4288, while the Nasdaq rose 0.7% to 13307.

In commodity markets, Brent crude oil slipped 1.8% to US$90.56 a barrel while gold was unchanged at US$1,828.12.

In local bond markets, the yield on Australian 2 Year government bonds was up at 4.14% while the 10 Year yield was also up at 4.48%. US Treasury notes were higher, with the 2 Year yield at 5.10% and the 10 Year yield at 4.68%.

The Australian dollar was lower at 63.62 US cents from its previous close of 64.31 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, was flat at 100.79.

Asia

China and Hong Kong markets were closed for the Mid-Autumn Festival and China’s National Day.

Japanese stocks ended lower, dragged by falls in tech and energy stocks, as the initial enthusiasm over the US government avoiding a shutdown and a strong Bank of Japan corporate-sentiment survey dissipated. Rakuten Group dropped 5.5% and Eneos Holdings shedded 2.5%. Meanwhile, bank stocks ended higher as the 10-year Japanese government bond yield rose 1 bp to 0.775%, the highest since September 2013. The Nikkei Stock Average fell 0.3% to 31759.88. Investors are focusing on economic data and their policy implications.

India markets were closed for the Gandhi Jayanti national holiday.

Europe

European stocks dropped and US blue-chip shares lost ground as better-than-expected US manufacturing data prompted fresh speculation about interest-rate rises. The Stoxx Europe 600 backtracked more than 1% and the DAX and CAC 40 retreated about 0.9%. The Dow and S&P 500 lose 0.6% and 0.4% respectively. "US markets slipped back on the open as the news that a government shutdown has been avoided collides with the reality that a resilient US economy will probably mean US rates could well need to go higher," CMC Markets analyst Michael Hewson writes.

The FTSE 100 closed 1.3% lower at 7,510.72 points on Monday, as U.K. yields pushed higher on concerns that the Bank of England may have to hike rates again by the end of the year, CMC Markets' U.K. Chief Market Analyst Michael Hewson says in a research note. Bright spots were few and far between, he says. One was the U.K. defense sector, with BAE Systems gaining 1.1% after winning a GBP4-billion contract from the government for nuclear submarines. Water company United Utilities also outperformed the wider index, rising 0.3% after releasing a GBP13.7-billion investment plan to improve water infrastructure.

North America

Tumbling utilities stocks weighed on the S&P 500 on Monday as investors dumped dividend-paying shares in favor of less-risky and higher-yielding US Treasurys.

Shares in the S&P 500's utilities segment dropped 4.7%, marking their worst session since the early days of 2020's Covid-19 lockdown. AES Corp., PG&E and Dominion Energy were among the 17 utilities in the index that fell more than 4%. NextEra Energy dropped 9%.

The broader S&P 500 ended Monday less than .1% higher despite the sell-off in utilities. Meanwhile, the Dow Jones Industrial Average fell 0.2%, or about 74 points. The tech-heavy Nasdaq Composite added 0.7%.

The Russell 2000 index of smaller companies declined 1.6% to turn negative year to date.

Utilities, which are usually considered among the safest bets in the stock market and offer some of the highest dividends, have shed 20% this year, the worst performing sector in the index.

"You have to compare their yield to what you can get from a risk-free asset in government bonds," said Gregg Abella, chief executive of New Jersey money manager Investment Partners Asset Management. "As that gets repriced, it's hard to know where the bottom is."

The yield on 10-year Treasury notes continued their sharp climb Monday, exceeding 4.7% intraday for the first time since October 2007. The benchmark yield ended at 4.682%, up from 4.572% on Friday. That exceeds the collective 3.94% dividend yield paid by utility shares in the S&P 500, according to FactSet.

Technology and telecommunications stocks were the only S&P 500 segments to end Monday higher. Large companies in those categories, such as chip maker Nvidia and Facebook owner Meta Platforms, have accounted for much of the broader index's 12% gain this year. Lately, however, those trades have lost steam and failed to offset declines elsewhere.

Phil Orlando, chief equity market strategist at Pittsburgh-based investment manager Federated Hermes, said he is counting on another month of choppy trading leading up to the Federal Reserve's November meeting. He expects the central bank to raise interest rates another quarter of a percentage point and then hold them steady for a year or so.

Stocks should rally in between as investors anticipate cuts to borrowing costs, according to Orlando. "The market historically rips on pauses," he said.

In an address Monday to bankers from Mississippi and Tennessee, Federal Reserve Gov. Michelle W. Bowman said she expects and favors further rate increases.

"I remain willing to support raising the federal-funds rate at a future meeting if the incoming data indicates that progress on inflation has stalled or is too slow to bring inflation to 2% in a timely way," she said.

Real-estate and energy shares also slumped Monday. Oil-and-gas producers Marathon, Occidental and Devon each lost roughly 4%.

Energy prices turned lower after the ISM Manufacturing Index for September registered a 10th consecutive month of contraction in the manufacturing sector.

Benchmark US crude futures lost 2.2% to end at $88.82 a barrel. Prices for natural gas, another big manufacturing input, also fell: Futures for November delivery dropped 3% to settle at $2.84 per million British thermal units.

Other big losers Monday included both stocks that came from the snacks-cereal split at Kellogg. Kellanova, the Rice Krispies Treats maker, and WK Kellogg, the Rice Krispies cereal company both dropped in their debut, falling 6% and 9%, respectively.