A look at the day ahead in European and global markets from Rae

Wee

Investors hoping for a roaring restart to China's stock

rally, after the mainland's week-long holiday, were disappointed

on Tuesday when Beijing policymakers offered only broad brush

strokes about stimulus plans at a high-profile press conference.

The National Development and Reform Commission (NDRC) said

it was "fully confident" of meeting its targets but offered none

of the details that investors are craving on China's aggressive

stimulus measures.

Although the key mainland stock indexes did surge 10% to

multi-year highs shortly after the open, those gains were

quickly pared back.

In stark contrast to the mainland, shares in Hong Kong

showed a sea of red, with the Hang Seng Index tumbling

more than 10% at one point.

Analysts initially attributed the divergence to Chinese

stocks playing catch-up, since Hong Kong had surged while the

mainland was on holiday, but it was soon clear that the markets

were disappointed over the lack of stimulus specifics from

Beijing.

That's set up a negative opening for Europe, with stock

futures falling in Asia hours.

EUROSTOXX 50 futures slid 0.8%, while FTSE futures

retreated 0.5%.

The economic calendar is relatively light for the day,

leaving the focus squarely on China, although fears of an

escalating conflict in the Middle East and a repricing of

Federal Reserve expectations will also remain front of mind for

investors.

Oil prices retreated on Tuesday - in part reflecting events

in China, although it was also due to a slight step back from a

strong rally at the start of the week on developments in the

Middle East. Hezbollah fired rockets at Haifa, and Israel looked

poised to expand its offensive into Lebanon.

Worries about disruptions to oil supplies have sent Brent

and U.S. crude futures surging more than 10% for

the month so far, and they look unlikely to reverse course

anytime soon.

As for the Fed, the market's short-lived conviction that it

would stick to a dovish path evaporated after Friday's

blockbuster payrolls report. Market pricing now points to just

another 50 basis points of rate cuts by December.

The benchmark 10-year Treasury yield, reflecting

the less aggressive expectations, stayed elevated above 4% on

Tuesday, while the two-year yield hovered near its

highest in more than a month.

Key developments that could influence markets on Tuesday:

- European Central Bank, Federal Reserve policymakers speak

- Germany industrial output (August)