S&P 500 Futures trace Wall Street’s gains, yields poke multi-day low ahead of US PCE inflation

• Market sentiment remains cautiously optimistic amid light macro, pre-data anxiety.
• S&P 500 Futures stay firmer around seven-week high, yields seesaw near the lowest levels since April.
• “Technical recession” followed Fed’s disappointment to improve risk appetite.
• Inflation expectations hint at further increases in prices teasing Fed hawks.

The risk profile remains mildly positive during early Friday as bulls take a breather after witnessing heavy volatility in the last two days. A lack of major data/events during the Asian session, as well as the anxiety ahead of the Fed’s preferred inflation gauge, seem to restrict the recent performance of markets.

While portraying the mood, the S&P 500 Futures rise half a percent as it seesaws near the highest levels since early June, at 4,095 by the press time. That said, the US 10-year Treasury yields seesaw around 2.67%, the lowest levels since early April, whereas the 2-year bond coupons remain pressured at the three-week low, down 0.14% intraday around 2.86% at the latest.

It’s worth noting that the US policymaker’s struggle to ward off the recession fears joins a cautious mood ahead of the US Core Personal Consumption Expenditure (PCE) Price Index for July to test the optimists. Also keeping traders on the edge are the US inflation expectations data, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED). The US inflation expectations refreshed the monthly high to 2.48% and renewed fears of higher Fed rates late Thursday.

Previously, the Flash readings of the US Q2 GDP marked the “technical recession” by declining for the second consecutive time. The same offered additional reason to the Fed hawks to retreat, other than Fed Chairman Jerome Powell’s signal of neutral rates. It should be noted that the first estimations of the US Q2 GDP printed -0.9% Annualized figure versus 0.5% expected and -1.6% prior. Further, the US Initial Jobless Claims also rose more than expected by 253K, with 256K during the week ended on July 22.

On a different page, talks between US President Joe Biden and his Chinese Counterpart Xi Jinping also went mostly okay but the energy crisis in the Eurozone kept flashing economic slowdown woes in the old continent and challenge the sentiment.

Amid these plays, the US Dollar Index (DXY) dropped to the lowest level in three weeks while prices of gold and crude oil remained firmer. Additionally, the Wall Street benchmarks managed to post another day in the green.

Looking forward, investors should pay attention to the risk catalysts ahead of the initial readings of German and Eurozone GDP for the second quarter (Q2) of 2022, as well as the Eurozone Flash Consumer Price Index (CPI) for July, for fresh impulse. Following that, the US Core PCE Price Index for July, expected 0.5% MoM versus 0.3% prior, will be important to track.