U.S. stock futures on Monday were starting the final quarter on a muted note as fears about the impact of tighter Fed policy continued to suppress sentiment.

How are stock index futures trading
  • S&P 500 futures
    ES00,
    +0.14%

    dipped 2 points, or 0.1%, to 3599

  • Dow Jones Industrial Average futures
    YM00,
    +0.34%

    rose 65 points, or 0.2%, to 28866

  • Nasdaq 100 futures
    NQ00,
    -0.26%

    eased 63 points, or 0.5%, to 10973

On Friday, the Dow Jones Industrial Average
DJIA,
-1.71%

f ell 500 points, or 1.71%, to 28726, the S&P 500
SPX,
-1.51%

declined 55 points, or 1.51%, to 3586, and the Nasdaq Composite
COMP,
-1.51%

dropped 162 points, or 1.51%, to 10576.

The S&P 500 has fallen for three consecutive quarters, off 24.8% over that time, and it lost 9.3% in September, the biggest monthly fall since March 2020.

What’s driving markets

New month, fresh quarter, same caution.

U.S. stocks were looking to start October and fourth quarter trading on a bearish note as worries lingered that the higher borrowing costs needed to crush multi-decade high inflation will damage the economy and hit corporate profits.

Richard Hunter, head of markets at Interactive Investor, said that recent comments from Federal Reserve officials had reiterated they intended to keep interest rates higher for longer in order to push inflation back to the Fed’s 2% target. But the latest data showed price pressures were stubborn.

A 5% fall in Tesla shares
TSLA,
-1.10%

following news of a missed deliveries target was weighing on Nasdaq 100 futures.

“The personal consumption index reading release on Friday underlined that this milestone [peak inflation] has not yet been reached, with prices excluding food and energy rising by 0.6% in August after a flat July. On a yearly basis the core number rose by 4.9%, ahead of the expected 4.7%. as such, the Fed is likely to keep a firm hand on the hiking tiller for the time being,” said Hunter.

Adding to tension on Monday was concern about the health of the financial sector in Europe as shares in Credit Suisse plunged to fresh lows, noted Peter Ganry, head of equity strategy at Saxo Bank.

“S&P 500 futures pushed below the 3,600 level this morning, which is obviously a major level to watch and indicates that the equity market is still facing headwinds. The latest risk sources adding to the negative sentiment are talks about Credit Suisse
CSGN,
-7.67%

and their financial strength,” Ganry said.

There was some potentially calming news from the U.K. however, where a government U-turn on tax policy, that had so roiled equity and fixed income markets last week, helped push sovereign bond yields lower. The benchmark 10-year Treasury
TMUBMUSD10Y,
3.783%

dipped 2.8 basis points to 3.803% as the equivalent duration U.K. bond
TMBMKGB-10Y,
4.059%

eased 15 basis points to 3.996%.

However, Jonathan Krinsky, strategist at BTIG, said he was not convinced that the dollar
DXY,
+0.33%

and bond yields had seen the top for this cycle.

“”The U.S. Dollar and global yields had what could be viewed as a ‘potential’ blow-off top last week. However, the uptrends are still intact and we can’t view these as ‘the’ peaks unless we violate some support levels. The key levels for us are DXY 109, and 10yr 3.50%,” he said in a note to clients published on Sunday.

Krinsky remained wary at suggesting the S&P 500, which closed on Friday right on its 200-weeek moving average, had hit a low — particularly as there was little sign of extreme stress in the index’s option market.

“We don’t think 3,589 will mark the low, and could see a possible overshoot towards 3,400 before a more durable low forms later in October,” he concluded.

U.S. economic updates set for release on Monday include the S&P U.S. manufacturing PMI report for September, due at 9:45 a.m. Eastern. The ISM manufacturing index for September and the construction spending report will be published at 10 a.m.

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