Stock futures were down Tuesday as focus turned to the Federal Reserve's

interest rate decision on Wednesday.

Investors now see a 92% chance that officials hike rates by a quarter-percentage point, according to CME data, up from 59% a week ago.

"For market participants, the immediate challenge lies in navigating Wednesday's Fed decision, where the market is heavily positioned for a hike but remains vulnerable to a hawkish forward guidance stance," Tickmill Group said.

Oil prices continued to rise as traders assessed the impact of lost Saudi Arabian volumes after the attack on the country's East-West pipeline. Brent crude futures were up nearly 2% this morning to trade just below $108 a barrel.

Meanwhile, the selloff in global bonds gained traction on Tuesday, pushing the 10-year Treasury yield to its highest level since 2007 after it rose above 5% for the first time in almost three years on Monday.

"Rates markets remain hostage to oil and geopolitics ahead of Wednesday's Federal Open Market Committee [meeting]," Mizuho said.

Stocks to watch

Coinbase Global, Robinhood Markets, Strategy: Shares of companies tied to cryptocurrencies slid premarket alongside the price of bitcoin. The cryptocurrency recently traded around $76,800, down nearly 3% from its 4 p.m. ET price Monday.

Dave & Buster's Entertainment: The arcade chain swung to a loss in the most recent quarter as it struggles to regain relevancy with customers. Shares tumbled nearly 14% premarket.

Halliburton, Occidental Petroleum, Marathon Petroleum: Shares of energy companies advanced premarket as Brent crude oil prices jumped to nearly $108 a barrel.

Watch For:

U.S. Empire State Manufacturing Survey for September; FOMC meeting; Canada Wholesale Inventories for July

Today's Top Headlines/Must Reads:

- Warsh's Arrival Ended Trump's War With the Fed. A Rate Hike Would Test the Truce.

- Bond Yields Could Come Down as Fast as They've Climbed

- The Stagnant Housing Market Is About to Face a 7% Mortgage

MARKET WRAPS Forex:

The dollar rose as investors anticipated the Fed will increase interest rates amid elevated oil prices as the Middle East conflict worsens and strong inflation and jobs data.

The euro fell. The currency could fall against the dollar if the Fed raises interest rates on Wednesday and signals the prospect of further tightening, ING said.

Sterling fell after data showed continued signs of softness in the U.K. labor market ahead of Thursday's Bank of England interest-rate decision.

Bonds:

Treasury yields rose across maturities in Asian trade after the 10-year yield rose above 5% for the first time since October 2023 on Monday.

Energy:

Brent rose 1.75% while WTI was up 1.8%. Prices remained below Monday's intraday highs.

Metals:

Gold futures were down 0.5% at $4,331.20 a troy ounce in morning European trade. The fall comes as higher energy prices reinforce expectations that the Fed will begin raising rates, ANZ said.

Iron ore

Iron ore futures were lower in Asian trade. Demand for iron ore remains weak in China, while supplies are still high, Baocheng Futures said.

TODAY'S TOP HEADLINES

AXA Targets More Growth With New Targets

AXA said earnings should keep growing over the next few years as the French insurer intends to gain market share after years of reorganization.

The new growth plan, which includes targets for 2027-29, builds on the repositioning the company has carried out in recent years to create a simpler organization, it said Tuesday.

OpenAI Buys Startup Developing Smartphone Camera

OpenAI quietly bought a startup developing higher quality cameras for smartphones in recent months, according to people familiar with the matter.

The company, Glass Imaging, is developing technology that uses artificial intelligence to produce image quality on par with a DSLR camera.

Abbott Agrees to $385 Million Settlement in Baby Formula Case

Abbott Laboratories has agreed to pay $385 million to settle allegations related to its management of a baby formula facility where deadly bacteria was suspected of causing infant deaths, the Justice Department said Monday.

The settlement is a more lenient outcome than some prosecutors had advocated for, believing they had evidence to criminally charge Abbott under a law that has been used to pursue other businesses for selling contaminated foods, the Journal previously reported. But senior Justice Department officials believed criminal charges would have been heavy handed and closed the probe.

Microsoft Sets Limits for AI Models as Altman Details Control Risks

Microsoft has published a provisional code of conduct that it aims to apply when training new artificial-intelligence models, the latest company to discuss limits on advanced AI systems as OpenAI's chief executive warned companies risk losing control of their AI systems.

Mustafa Suleyman, the CEO of Microsoft AI, told CNBC Monday that the company had been working for months on the new guidance, which includes principles it describes as "humanist AI," but chose to publish it now given the current debate around AI.

U.S. 10-Year Treasury Yield Rises to Highest Since 2007

The selloff in global bonds gained traction on Tuesday, pushing the 10-year U.S. Treasury yield to its highest level since 2007 after it rose above 5% for the first time in almost three years on Monday.

Investors accelerated selling of other global bonds too, pushing yields on 10-year German and Japanese government bonds to multiyear highs.

Oil Prices Rise as Middle East Supply Concerns Persist

Oil prices rose in early European trading Tuesday as the shutdown of Saudi Arabia's East-West Pipeline and recent territorial gains by Houthi militants in Yemen kept concerns over Middle East crude supplies elevated.

Brent crude futures rose 1.8% to $107.59 a barrel, while West Texas Intermediate gained 1.9% to $103.30 a barrel. Prices remained below Monday's intraday highs, when Brent briefly reached $109.80 a barrel and WTI touched $104.35 before paring gains. Brent ultimately settled at $105.68, while WTI settled at $101.39

German Investor Confidence Continues Improving Streak

German investor sentiment improved for a fifth-straight month in September, helped by continued resilience in the economy despite still-surging energy prices due to the conflict in the Middle East.

The ZEW Indicator of Economic Sentiment for Germany-which tracks the expectations of 196 analysts and investors at banks, insurance companies and other businesses-rose 0.5 point to 34.7 in September. That was, however, weaker than expectations from economists polled by The Wall Street Journal of an increase to 40.0.

The Lightning Offensive That Saw the Houthis Grab a Crucial Oil Corridor

DUBAI-After sitting out months of the Iran war, Yemen's Tehran-backed Houthi rebels seized a crucial maritime chokepoint in a lightning offensive over the weekend that further imperiled global energy supplies and injected the group into any effort to resolve the conflict.

It is an unusually prominent position for the group's warlord leader, Abdulmalik Al-Houthi, who claims descent from the Prophet Muhammad and rules his impoverished territory through fear and religious fervor. But it is one that reflects both the growing ambition of his 350,000-strong militant army and its prowess with military tactics, missiles and drones.

Supreme Court Blocks Trump's New Mail Ballot Requirements for Midterms

WASHINGTON-The Supreme Court on Monday blocked the Trump administration from imposing new requirements for mail ballots, averting what state and local officials warned would have been a crisis in the midterm elections.

In an unsigned one-paragraph ruling, over the dissent of two conservative justices, the court said the U.S. Postal Service can't enforce new rules that would have compelled states to quickly redesign their ballot envelopes, submit lists of voters to the federal government and get signoff from postal officials before ballots could be mailed to voters.

The Gulf's AI Nightmare Came Courtesy of an Iranian Drone

DUBAI-The day after the U.S. and Israel launched their opening strikes on Iran, the Islamic Republic shot back with swarms of drones aimed at the Gulf's newest high-value targets: American data centers.

More than six months after the barrage, a damaged Amazon Web Services facility in Abu Dhabi and another one in Bahrain are still mostly offline. The company has told clients to move their data to other regions while it repairs the sites and hasn't given a date for completing the work.

Oil Executives Say the Great Fuel Crisis Is Here

American oil executives warned for months that the prolonged closure of the Strait of Hormuz was bound to cause a fuel crisis. Now, they say it is here.

Commercial fuel stocks around the world have been depleting for more than six months, and strategic crude reserves can't be tapped much further. Attacks last week shut down a crucial crude pipeline in Saudi Arabia that bypassed the Strait, stranding at least 2.5 million barrels a day from an already tight global oil market, analysts estimate.

Write to priscila.barrera@wsj.com

TODAY IN CANADA Earnings:

NanoXplore Inc. 4Q

Economic Indicators (ET):

0830 Jul Wholesale trade 0830 Jul New motor vehicle sales

Stocks to Watch:

Spur Point Capital Raises Stake in Swiss Water Decaff Coffee to 18.68%

Tilray Brands Enters Certain Private Debt-for-Equity Exchange Transactions;Issues 2.84M Shrs in Exchange for $12M of 5.2% Convertible Senior Notes Due June 15, 2027.

Expected Major Events for Tuesday 04:30/JPN: Jul Tertiary Industry Index

04:30/JPN: Jul Revised Retail Sales

06:00/GER: Aug WPI

06:00/UK: Aug UK monthly unemployment figures

06:45/FRA: Aug CPI

08:00/ITA: Jul Foreign Trade EU