1. Futures Slip

U.S. stock index futures edged lower on Tuesday as investors awaited the start of the Federal Reserve’s policy meeting while also assessing the impact of an expanding conflict in the Middle East.

At 3:20 a.m. ET (15:20 Beijing time), Dow futures were down 266 points, or 0.5%; S&P 500 futures slipped 28 points, or 0.4%; and Nasdaq 100 futures fell 90 points, or 0.3%.

Wall Street’s major indexes retreated across the board in the previous session, partly due to renewed concerns over artificial intelligence — several top AI industry executives called for slowing the pace of development of the emerging technology. Chip stocks were hit hard, with the Philadelphia Semiconductor Index posting its biggest one-day drop since July.

Meanwhile, Saudi Arabia shut down its key east-west oil pipeline — an alternative route to the effectively closed Strait of Hormuz — sending oil prices sharply higher. Concerns over persistent energy-driven inflation pushed government bond yields up, with the benchmark 10-year U.S. Treasury yield breaking above the 5% mark for the first time since 2023.

Deutsche Bank analysts said in a note: "This is another trading day living up to Septembers reputation as the worst month of the year for asset performance, with bonds and stocks continuing to come under pressure."

They added that they will closely watch U.S. Treasury Secretary Scott Bessents testimony later today before the House Financial Services Committee "to see whether he will credibly push back against the upward trend in bond yields."

2. Fed Meeting Looms

Market attention now turns to the Federal Reserve. The Fed is expected to announce a rate hike at the conclusion of its meeting on Wednesday.

Fed officials have previously signaled the need to focus on curbing inflationary pressures, especially as the Middle East conflict continues to constrain oil supplies and drive energy prices higher.

According to CME FedWatch data, the probability that the Fed will raise rates by 25 basis points this week is about 92%, which would lift borrowing costs to a range of 3.75% to 4%. Deutsche Bank analysts also noted that the market has now priced in a cumulative 90 basis points of rate hikes by the Fed’s June 2027 meeting, up 2 basis points from the previous day, and this repricing is one of the factors pushing Treasury yields higher.

Recent data show inflation remains sticky and the labor market resilient, two trends that give the Fed more room for further rate hikes. In theory, higher rates help curb inflation, but they also risk hitting the job market and the broader economy.

3. Brent Crude Prices Rise

Oil prices rose sharply on Tuesday, extending recent gains. More Houthi attacks on Saudi Arabia intensified concerns over supply disruptions in the Middle East. Meanwhile, talks between Iran and Gulf states over reopening the Strait of Hormuz remained deadlocked, further adding to global supply concerns, with a risk premium persisting in crude oil.

On Monday, the Iran-aligned Houthi movement in Yemen launched a new round of strikes on Saudi Arabia and continued to consolidate positions in key areas along the Red Sea coast. From these positions, the Houthis are able to launch more attacks on ships passing through the Bab el-Mandeb Strait, threatening the region’s oil transport routes.

The Houthis attacked multiple targets in Saudi Arabia, further threatening the country’s oil exports. Last week, Saudi Arabia’s East-West oil pipeline was already shut down after being attacked. The latest Houthi offensive has opened a new front in the Middle East conflict, and analysts estimate global oil supply could be reduced by an additional 4% to 5%.

4. Former Google DeepMind Researcher Issues Fresh AI Warning

An AI researcher who recently left Google DeepMind said on Monday that artificial intelligence could cause widespread harm to humanity. Bilal Chughtai, formerly a research engineer at Google DeepMind, is deeply concerned about the trajectory of AI development and warned that within the next few years, superintelligent systems far beyond human capabilities could become a reality and pose extreme dangers.

Bilal wrote on social media: "I genuinely believe that artificial intelligence could kill all of us, and we may not have much time left to avoid that outcome."

The warning is not isolated. Several AI researchers have previously raised alarms about unconstrained AI development and its impact on humanity. Jacob Coxon, a former researcher at Anthropic, said last week that concern over AIs potential dangers was part of the reason he left. Over the weekend, Anthropic CEO Dario Amodei published an article calling for stronger regulation of AI models and a slower pace of development.

5. Export Demand Lifts Chinas August Industrial Production

Chinas industrial production growth beat expectations in August, with strong overseas export demand effectively supporting domestic industrial activity amid a weakening overall economic environment.

Industrial production rose 5.2% year-on-year in August, above the market expectation of 4.8% and better than the previous months 4.5%. The strong performance was mainly driven by robust overseas demand for Chinese goods, especially electronic components, batteries, and networking equipment.

However, fixed-asset investment fell 7.2% year-on-year in the January-August period, worse than the market expectation of a 7.0% decline. The indicator, an important gauge of public and private capital spending in China, has remained in negative territory since April.