S&P 500 Futures cheer US inflation miss but yields stay sluggish on Fed, China concerns

Risk appetite remains unclear during early Thursday after the US inflation numbers triggered the market’s optimism. The reason could be linked to the latest comments from the Fed policymakers and headlines surrounding China and coronavirus.

While portraying the mood, S&P 500 Futures print mild gains near 4,220 after Wall Street rallied. Further, the US Treasury yields mainly remained unchanged near the previous day’s closing, around 2.79%. That said, the WTI crude oil grinds higher past $91.00, up 0.10% intraday, whereas the US Dollar Index (DXY) gains 0.14% to 105.40 at the latest.

Market sentiment improved after US Consumer Price Index (CPI) declined to 8.5% on YoY in July versus 8.7% expected and 9.1% prior. “Traders of futures tied to the Fed's benchmark interest rate pared bets on a third straight 75-basis-point hike at its Sept. 20-21 policy meeting, and now see a half-point increase as the more likely option,” mentioned Reuters after the US inflation data release.

Also supporting the optimism in the US markets were comments from US President Joe Biden, who said, “Seeing some signs that inflation may be moderating,” as reported by Reuters. "We could face additional headwinds in the months ahead," Biden added. "We still have work to do but we're on track," adds US President Biden.

However, comments from Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans challenged the risk-on mood. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

On the same line were the headlines surrounding China that underpinned the latest rebound in the US dollar. Reuters relied on sources to mention that the saying US President Biden rethinks steps on China tariffs in the wake of Taiwan's response. Additionally, a jump in the coronavirus cases from China, to 700 new confirmed cases in the mainland on August 10 versus 444 a day earlier, also weighs on the pair.

Given the market’s mixed performance, the traders should wait for weekly readings of the US Jobless Claims and the monthly Producer Price Index (PPI) for July for fresh impulse. Also important will be the risk catalysts and Friday’s preliminary readings of the Michigan Consumer Sentiment Index for August.