U.S. stock futures drop on U.S-China trade deal doubt, bond market nerves

By Shreyashi Sanyal

(Reuters) - U.S. stock index futures dipped on Tuesday as investors turned skeptical of the chances of a breakthrough in the U.S.-China trade talks, while a flattening U.S. yield curve raised fears of a slowing domestic economy.

Wall Street rallied on Monday on news that U.S. President Donald Trump and Chinese President Xi Jinping had agreed to hold off on new tariffs for 90 days, offering relief to the stock market that has been clouded for much of the year by the prospect of an all-out trade war.

However, different dates from the White House regarding start of the three-month trade ceasefire and skepticism over an actual resolution in the agreed negotiating window dampened the mood.

"Although the U.S. agreed not to increase tariffs on China for the next three months, the fact that there is a deadline in place rather than an open-ended agreement is capping any attempts at a more serious rally," Fiona Cincotta, senior market analyst at City Index wrote in a client note.

The short end of the U.S. yield curve also inverted for the first time since 2007, and the yield curve between the benchmark 2-year and 10-year notes remained at the flattest in over a decade. [US/]

Investors typically demand higher yields to commit money for longer periods of time. When short-term yields move higher it can imply doubts about the immediate future, and an inversion of the yield curve has preceded past recessions.

At 7:31 a.m. ET all the three major futures were down about half a percent.

Apple Inc dropped 1.9 percent in premarket trading after leading the rally on Monday. One of the company's suppliers Cirrus Logic trimmed its revenue outlook, adding to growing evidence that the latest iPhones are not selling well.

Dollar General Corp fell 7.1 percent after lowering its full-year profit and sales forecast, hit by higher costs related to hurricanes.

Toll Brothers Inc dropped 5.6 percent after the luxury home builder reported its first fall in quarterly orders in more than four years on rising interest rates and higher home prices.

Among few bright spots, shares of energy companies were higher as crude prices rose more than 2 percent, extending gains ahead of expected output cuts by OPEC and a mandated reduction in Canadian supply. [O/R]

(Reporting by Shreyashi Sanyal in Bengaluru; Additional reporting by Sruthi Shankar; Editing by Shounak Dasgupta)