S&P 500 Futures, yields portray cautious optimism on China stimulus while preparing for US inflation, NFP

The risk appetite improves on early Monday as market players cheer China's stimulus while consolidating the previous weekly moves ahead of the top-tier US inflation and employment data. Also likely to defend the optimists could be the mixed bias of the global central bankers at the Jackson Hole Symposium, as well as the resumption of trading of China’s troubled real-estate player Evergrande after 17 months of a halt.

While portraying the mood, S&P 500 Futures defend the previous day’s rebound from a one-week low to around 4,420, up 0.10% intraday, whereas the US 10-year Treasury bond yields grind near 4.23% after snapping the four-week uptrend by posting minor weekly losses as it retreated from the highest level since 2007.

The weekend news from China suggests the introduction of one more measure to boost economic activity, via halving of the current stamp duty of 0.1% on stock trading. On the same line could be the news from the Wall Street Journal (WSJ) which cites people familiar with the decision-making process in China to highlight Chinese Communist Party Chairman Xi Jinping’s deep-rooted philosophical objections to Western-style consumption-driven growth, suggesting more stimulus ahead.

Additionally, the market’s mixed concerns about the futures of the restrictive monetary policies at the major central banks also allow traders to remain hawkish.

During the last week, Fed Chair Jerome Powell reiterated his defense for “higher for longer” rates while stating that the policy is restrictive but the Fed can’t be certain what neutral rate level is. The policymaker also added that there is substantial further ground to cover to get back to price stability while also stating that the economic uncertainty calls for agile monetary policy-making.

It should be noted that the policymakers from the rest of the major central banks, including the European Central Bank (ECB), Bank of England (BoE) and the Bank of Japan (BoJ), also appeared cautiously hawkish and hence allowed the traders to pare the previous moves on early Monday.

Elsewhere, US Commerce Secretary Gina Raimondo visits Beijing and her meeting with Chinese Commerce Minister Wang Wentao appeared well even as the policymaker defends American National Security measures.

Against this backdrop, stocks in China rally even as Evergrande slumps on returning to the trade journal after 17 months. The same propels the sentiment in the Asia-Pacific market and weighs on the US Dollar Index (DXY).

Moving on, the risk catalysts will provide the fresh impulse ahead of the Federal Reserve’s (Fed) favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index for July, and the monthly employment data will be crucial for clear directions.

Also read: Forex Today: US inflation and jobs data to challenge Dollar's rally