S&P 500 Futures stay mildly bid even as yields retreat from multi-day top, US inflation eyed

Global markets portray the typical pre-data anxiety during early Tuesday in Europe. In addition to the cautious mood ahead of the all-important US Consumer Price Index (CPI), mixed headlines from China and a light calendar elsewhere also offer a sluggish start to the key day.

While portraying the mood, the US 10-year Treasury yields retreat from a three-month high, down two basis points (bps) to 3.34%. Even so, S&P 500 Futures and the stocks in the Asia-Pacific zone print mixed performance, despite posting mild gains by the press time. It should be noted that the US two-year Treasury yields snap a three-day uptrend as they ease from the highest levels since late 2007, down half a percent near 3.547% at the latest.

With the last comments from the Fed policymakers ahead of the pre-Fed meeting blackout keeping its hawkish bias, despite the recently easing inflation fears, today’s US CPI data for August will be crucial for near-term directions and hence escalate the anxiety ahead of release. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to remain unchanged at 0.3% MoM.

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Elsewhere, the market’s latest chatters surrounding China President Xi Jinping’s aim to reassert Beijing’s influence during the first foreign trip after covid-led lockdowns underpins the cautious mood. On the same line could be the Financial Times (FT) news suggesting mixed views over US President Joe Biden’s chip plan that challenges China. Additionally, expectations that the People’s Bank of China (PBOC) will refrain from any monetary policy change during Thursday’s meeting also challenge the optimists.

It should be noted that hawkish comments from the European Central Bank (ECB) policymakers and updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism. Furthermore, hopes for more stimulus from China, the UK, the US and Europe also keep market players hopeful. Recently, Bloomberg reported that China’s Premier Li Keqiang vowed more policy support to drive up consumption in the economy. The news also signaled that China will adhere to multiple measures to stabilize growth, employment and prices.

To sum up, trading sentiment remains sluggish but the rush towards bonds, in search of risk-safety weighs on the yields ahead of the US inflation data.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios