S&P 500 Futures portray risk-aversion, yields retreat amid US-China, Fed concerns ahead of US inflation

Risk profile deteriorates during Monday’s Asian session, extending Friday’s sour sentiment, as traders await the US Consumer Price Index (CPI) data for July. In addition to the anxiety ahead of the key data, fears surrounding the Fed’s aggression and the US-China tussles over Taiwan also contribute to the risk-off mood.

That said, the S&P 500 Futures drop 0.20% intraday while extending the previous day’s pullback from the two-month high to around 4,138. Further, the US 10-year Treasury yields ease back to near 2.82%. It’s worth noting that Wall Street benchmarks closed negative and the US 10-year Treasury yields rallied to 2.83%, up 14 basis points (bps), to renew the US dollar strength.

Among the major catalysts, the US employment report for July and the Sino-American tension over Taiwan gain major attention. A strong US employment report for July underpinned hawkish Fed bets and recalled the US dollar bulls the previous day. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

Following the data, San Francisco Fed President Mary Daly said during the weekend that the Fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.”

Elsewhere, Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation.

Alternatively, firmer trade numbers from China should have challenged the pessimists during the sluggish week-start. The headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

Looking forward, a light calendar keeps the traders’ focus on the risk catalysts for fresh impulse ahead of the key US inflation data, up for publishing on Wednesday.