S&P 500 Futures regain 3,600 despite steady Treasury bond yields ahead of US inflation

• Market sentiment remains mildly positive even as pre-data anxiety restricts momentum.
• S&P 500 Futures snap six-day downtrend, yields print the first daily gains in three.
• China’s stimulus jostles with hawkish Fedspeak, US hardships for chipmakers to add to trading filters.
• US CPI becomes crucial catalyst, likely to drown riskier assets.

Global markets portray the typical pre-data trading lull on early Thursday as traders eagerly await US Consumer Price Index (CPI) data for September. Also challenging the momentum are the mixed headlines surrounding China and Fed, as well as a light calendar in Asia.

While portraying the mood, the S&P 500 Futures print mild gains around 3,600 to break the six-day losing streak. On the same line, the US 10-year, 2-year and 30-year Treasury yields are all snap a two-day downtrend even if the recovery remains sluggish.

The US action to increase hardships for Chinese chip manufacturer joins hawkish Fedspeak to exert downside pressure on the market sentiment, preceding the upbeat Fed Minutes. On the contrary, Chinese media chatters suggesting the government’s plan to buy houses as a part of the stimulus seemed to have put an immediate floor under the riskier assets.

Earlier in the day, Federal Reserve Governor Michelle Bowman said that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters. The Fed policymaker’s comments were in agreement with the latest Federal Open Market Committee (FOMC) Meeting Minutes which mentioned that the policymakers are concerned about inflation and fear doing too little.

With this, the CME’s FedWatch Tool prints a nearly 85% chance of the Fed’s 75 bps rate hike in November. Elsewhere, the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, retreated from the recent one-week highs.

That said, US Treasury Secretary Janet Yellen’s response, shared via Bloomberg, to a question relating to the Treasury market’s liquidity also challenges the risk appetite. “We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in answering questions following a speech in Washington, per Bloomberg.

Given the pre-CPI trading lull is in full steam, today’s US inflation data are likely to offer more volatility amid the recently hawkish Fed signals and the market’s wagers on hawkish moves.

Also read: US September CPI Preview: Monthly core inflation is the figure to watch