S&P500 Futures flirt with yearly top, Treasury bond yields drift lower as US banks, Fed chatters prod traders

• Markets remain cautiously optimistic as top-tier US banks anticipate more profits, Fed policy pivot talks gain acceptance.
• Upbeat US Retail Sales Control Group for June, mixed news from China check risk-on mood and favor US Dollar rebound.
• Light calendar in US, cautious mood ahead of next week’s FOMC limits momentum.

Cautious optimism prevails in the market during the early hours of Wednesday’s Asian session, following a turnaround Tuesday. That said, the headlines surrounding the US banks and China joined the market’s expectations of the US Federal Reserve’s (Fed) next moves to direct the short-term moves.

While portraying the mood, the S&P500 Futures grind near the highest levels since March 2022, dicey near 4,585 by the press time. Not only the US stock futures but the US 10-year and two-year Treasury bond yields also portray the sluggish markets as the benchmark US 10-year bond coupons remain pressured around 3.78% while the two-year counterpart edges lower to 4.75% at the latest.

Additionally, the US Dollar Index (DXY) edges higher around 100.00, after bouncing off 99.56 the previous day whereas the stocks in the Asia-Pacific zone edge higher and the commodities print mild losses.

That said, the market’s risk appetite improved the previous day on the positive performance of the US banks, as well as the risk-positive headlines surrounding China, which in turn allowed the Wall Street benchmarks to refresh the yearly top.

Furthermore, the latest Reuters poll of around 109 economists suggests that the Fed’s widely anticipated 25 basis points (bps) rate hike in July will be the last increase of the current tightening cycle, which in turn favors the sentiment of late.

Additionally, headlines from China hint at major issuance of local government bonds and a slowdown in the January-June fiscal revenue growth. It should be noted that Washington’s efforts to re-establish ties with China, via multiple diplomats’ visits to Beijing one after the other, join the dragon nation’s rejection of economic fears and hopes of witnessing a 5.0% growth rate in 2023 to underpin optimism about the world’s biggest industrial player and push back the bears.

It’s worth noting that the share prices of the top-tier US banks like Bank of America, Morgan Stanley and Bank of New York Mellon Corp rallied on Tuesday on news that higher interest rates had helped boost profits in the second quarter, shared via Reuters. “Signs of a revival in investment banking, which has been in the doldrums as higher rates and economic uncertainty put a damper on deals and trading, also drove share gains,” said the news. Also important to observe was the US Dollar Index rebound from a 15-month low as the details of the US Retail Sales growth for June appeared upbeat.

Moving on, UK inflation data will entertain traders together with the risk catalysts amid a light calendar and cautious mood ahead of the next week’s Federal Open Market Committee (FOMC) monetary policy meeting.

Also read: Forex Today: US Retail Sales failed to hold back the US Dollar, eyes on NZ CPI