S&P 500 Futures, yields portray cautious optimism on Fed, China chatters

• Market sentiment improves amid easing hawkish bets on the Fed’s next moves.
• China’s hints of more stimulus adds strength to the positive mood amid pre-Fed blackout.
• ECB, PMIs will be in focus but recession chatters are the key for fresh impulse.

Risk profile improved during early Monday, extending the previous day’s upbeat sentiment, as markets curtail hopes of the Fed’s 100 bps rate hike. The positive sentiment could be linked to the mixed US data and Fedspeak, not to forget risk-positive news from China.

While portraying the mood, the S&P 500 Futures print 0.20% intraday gains around 3,875 while the US 10-year Treasury yields remain mostly pressured around 2.92% by the press time. It’s worth noting that Wall Street printed heavy gains the previous day and helped in improving the risk appetite during the early Asian session.

That said, the US Retail Sales for June grew 1.0% MoM versus 0.8% expected and -0.1% prior (revised from -0.3%) whereas the University of Michigan's Consumer Confidence Index edged higher to 51.5 in July's flash estimate, versus 49.9 expected and 50.0 prior. However, the Index of Consumer Expectations declined to its lowest level since May 1980 at 47.3. Further, the US Industrial Production also contracted by 0.2% MoM in June while the New York Empire State Manufacturing Index rose to 11.1 versus -2.0 expected and -1.2 prior.

On the other hand, Atlanta Fed President Raphael Bostic said on Friday that June's 75 basis points rate hike was a "big move" and added that the Fed wants policy transition to be orderly, as reported by Reuters. On the other hand, San Francisco Fed President Mary Daly said on Friday that the "Fed is working on getting down inflation without stalling economy." Further, St. Louis Federal Reserve Bank President James Bullard sounded neutral as he said, per Reuters, on Friday that it wouldn't make too much of a difference to do a 100 basis points (bps) or a 75 bps rate hike at the next meeting.

Elsewhere, the Fed’s blackout period ahead of late July’s FOMC and China’s readiness for more stimulus, as well as hawkish hopes from the European Central Bank (ECB), add strength to the market’s positive sentiment.

Given the market’s cautious optimism, as well as a lack of major data/events up for publishing on Monday, traders should keep their eyes on the European Central Bank (ECB) and Fed chatters for fresh clues. Also important will be the preliminary PMI readings for July. Furthermore, headlines suggesting China’s active role to propel the dragon nation’s economy also need attention.