S&P 500 Futures retreat, yields dribble at multi-year top as markets await NFP

Market sentiment portrays the typical pre-NFP inaction, light calendar adds strength to trading lull.
S&P 500 Futures fade bounce off six-week low, two-year Treasury yields seesaw at the highest levels since 2007.
US President Biden’s curbs to chip exports to China, covid woes in Beijing weigh on sentiment.
Hawkish Fedbets test risk profile but downbeat hopes from NFP tease optimists.

Anil Panchal FXStreet

Global markets remain dicey as traders wait for the US Nonfarm Payrolls (NFP) during early Friday. Even so, fears of recession and hawkish Fed bets keep the bears hopeful amid a sluggish Asian session.

While portraying the mood, the S&P 500 Futures drop 0.10% intraday while retreating to 3,966, after bouncing off the six-week low the previous day. Also, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

A covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy and weigh on the sentiment. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan. Furthermore, Reuters unveiled news suggesting that US President Joe Biden's curbs on chips to China are part of a broader effort.

On the other hand, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002, mildly offered near 109.60 at the latest.

US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Moving on, market players will keep their eyes on the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse amid mounting calls of recession and central bank aggression.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar

Author

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

AUD/USD bounces off nearly two-month low; upside seems limited

AUD/USD rebounds from its lowest level since April 13, touched during the Asian session on Monday, as the US Dollar pauses following Friday's upbeat US NFP-led blowout rally to a two-month high. However, persistent geopolitical uncertainties, along with surging bets on Fed rate hikes, might continue to act as a tailwind for the USD. Furthermore, diminishing odds of a near-term RBA rate hike should cap gains for the Aussie.

USD/JPY bulls seem hesitant amid intervention fears

USD/JPY touches a fresh high since late April following an Asian session dip, though intervention fears limit losses for the Japanese Yen (JPY) and cap the upside. This counters Japan’s revised GDP print, which confirmed that the economy lost momentum in the first quarter. Meanwhile, Friday's upbeat US NFP report lifted bets of a Fed rate hike and favors the US Dollar bulls, backing the case for a further move higher for the currency pair.

Gold recovers slightly from the $4,300 neighborhood; not out of the woods yet

Gold attracts some buyers at the start of a new week and reverses part of Friday's decline to its lowest since March 24, around the $4,300 mark. The US Dollar pauses after Friday’s upbeat US NFP-led blowout rally to a two-month high and supports the bullion. However, a surge in bets on a Fed rate hike, along with geopolitical uncertainties, favors USD bulls. The backs the case for the emergence of fresh sellers around the precious metal at higher levels.

Week ahead: Fed countdown begins amid US inflation data and geopolitical risks

The countdown to the biggest event of the year so far, the first Fed meeting under Chair Warsh on June 17, has officially commenced. Next week’s key events could serve as the best appetizer for Warsh’s first press conference, although market participants will probably be distracted by developments elsewhere.

Week ahead – Fed countdown begins amid US inflation data and geopolitical risks

Fed Chair Warsh’s first meeting approaches as key US inflation data could reshape expectations. Oil prices remain elevated as US-Iran talks continue; tariffs also return to the spotlight. ECB is expected to hike; will it be a one-off move or is July live?

The US economy defies the rules: 100 days into the Oil shock and the recession signal is still missing

More than three months after the start of the Iran war and the resulting disruption to global energy markets, the US economy continues to display remarkable resilience. The conflict has triggered a sharp rise in Oil prices, reignited inflationary pressures and fueled widespread concerns about a potential economic slowdown.