S&P 500 Futures drop back to 4,100 as Treasury yields stay firmer ahead of US inflation

  • Risk appetite sours amid indecision over Fed’s next moves, market’s anxiety ahead of key data/events.
  • Headlines from China, Japan struggle to defend optimists amid light calendar ahead of RBA.
  • Full markets’ reaction to the latest swing in sentiment, second-tier US data eyed for immediate directions.

Global markets remain depressed during early Tuesday as traders struggle for clear directions, as well as fear a heavier/longer interest rate increase by the Fed. Also challenging the risk appetite could be a cautious mood ahead of the European Central Bank’s (ECB) monetary policy meeting and the US Consumer Price Index (CPI) data.

While portraying the mood, the US 10-year Treasury yields rise for the seventh consecutive day to 3.05%, up 1.1 basis points (bps). Further, the S&P 500 Futures fail to keep the week-start rebound as it drops 0.46% to 4,103 by the press time.

Friday’s strong US Nonfarm Payrolls (NFP) and the last dose of hawkish Fedspeak before the blackout norm favored the US Treasury yields to snap a three-week downtrend by the end of Friday. As per the latest readings, market players anticipate around 70% chances of the Fed’s 0.50% rate hike in September versus nearly 30% odds favoring such an outcome a week ago.

Alternatively, Bank of Japan (BOJ) Governor Haruhiko Kuroda praises the economic transition and defends the easy money policies while the China eyes further unlock and GDP increase from the second part (H2) of 2022.

China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored sentiment and tested the US dollar’s safe-haven appeal.

Given the firmer yields and stock futures, US Dollar Index (DXY) also takes the bids and weighs on commodities, as well as the Antipodeans. Adding to the AUDUSD pair’s weakness is the cautious mood ahead of the Reserve Bank of Australia’s (RBA) rate hike.

That said, traders are likely to remain cautious and may stay away from the riskier assets ahead of the ECB and the US CPI. However, However, risk catalysts and the US Goods and Services Trade Balance for the said month, forecast at $-89.5B compared to $-109.8B previous readouts, can entertain intraday traders.