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Wall Street futures retreat as Italy, China concerns drag global assets

➤ Chinese yuan, stocks shed after weeklong holiday; reserve requirement cut for banks.

➤ Italian bonds sell off as European Commission warns on government's budget.

➤ Jair Bolsonaro, Fernando Haddad advance to presidential run-off in Brazil.

➤ Brent crude oil falls as U.S. reportedly considers waivers for sanctions on Iran.

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Wall Street is set to open lower, tracking weakness in Asian and European stock markets, while the dollar gained against its peers amid concerns on China's economy and Italy's budget battle with the European Union.

Chinese markets closed in the red after returning from a weeklong holiday, with the Shanghai SE Composite index tumbling 3.72% and the Shenzhen SE Composite dropping 3.83%. Yesterday, the People's Bank of China cut the reserve requirement ratio for lenders by 1 percentage point, effective Oct. 15, in a bid to pump up to $174 billion into the country's slowing economy. The Chinese yuan dropped 0.78% against the dollar as of 7 a.m. ET.

"The fact the authorities are cutting the amount of capital banks need to hold in relation to their loan book suggests they are worried about the economy," said David Madden, market analyst at CMC Markets UK. "It gives off the impression the country is gearing up for a protracted trade spat."

Hong Kong's Hang Seng Index fell 1.39%, while markets in Japan were closed for a local holiday.

Declines in the Asian markets extended into Europe, where concerns about the Italian government's spending plans continued to weigh on investor sentiment. Italy's FTSE MIB index dipped 2.12%, with shares in major banks UniCredit SpA, Intesa Sanpaolo SpA and Banco BPM SpA all plummeting as a warning from the European Commission on Italy's budget targets sent yields on 10-year government bonds surging more than 17 basis points to 3.58%.

Germany's DAX dropped 0.84%, while France's CAC 40 slipped 0.89% and the U.K.'s FTSE 100 shed 0.63%. The latest developments in the Italian budget saga also took its toll on the euro, which fell 0.45% against the dollar, while sterling dropped 0.68% and the Japanese yen rose 0.32%.

In other currencies, the Brazilian real gained 0.19% against the dollar as right-wing congressman Jair Bolsonaro will face the leftist Workers' Party candidate Fernando Haddad in a run-off for Brazil's presidency after gaining the most votes in the first round of election yesterday. The South African rand, meanwhile, dipped 0.75% amid reports that Finance Minister Nhlanhla Nene had asked to resign.

Treasurys are on break from trading today after closing 4 basis points higher at 3.23% on Friday, as unemployment in the U.S. fell to a near 49-year low in September, though hourly wages grew slower than expected.

"The rally in bond yields, if sustained, could have major implications on financial markets going forward," according to Fawad Razaqzada, technical analyst at Forex.com. "After all, it was during all those years post the financial crisis when they were falling which led to investors flocking to the higher-yielding stock markets in the first place."

Brent crude oil fell 1.54% to $82.86 per barrel on the ICE Futures Exchange amid reports that the U.S. is considering waivers for its planned sanctions on Iran's oil exports, which are expected to take effect in November. Gold futures were down 0.66% to $1,197.60 per ounce.

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The day ahead:

12:30 p.m. ET — U.S. TD Ameritrade IMX