S&P 500 Futures retreat, yields recover as Jackson Hole begins

• Market sentiment dwindles ahead of the key data/events.
• Geopolitical, covid headlines also contribute to cautious mood.
• S&P 500 Futures snap two-day uptrend, yields regain upside momentum.
• US PCE inflation data, Fed Chair Powell’s speech at Jackson Hole will be crucial.

Global markets fade the previous optimism ahead of the Fed’s preferred inflation release and crucial Jackson Hole speech from Powell in early Friday. Adding to the sour sentiment could be the headlines surrounding China, Iran and Taiwan.

While portraying the mood, the S&P 500 Futures part ways from Wall Street’s gains and print mild losses around 4,195. Additionally portraying the risk-off mood is the two basis points (bps) of an increase in the US 10-year Treasury yields, at 3.045% by the press time.

News that China’s county near Beijing declared lockdown due to covid joined the US suspension of 26 Chinese carrier flights in response to Beijing’s action to weigh on the risk appetite. Also, an increased military budget, a jump in the number of US diplomats visiting Taipei and US President Joe Biden’s hard stand on Iran’s position in Syria appears to have exerted additional downside pressure on the market sentiment.

Previously, the mildly positive US data joined mixed Fedspeak and China’s stimulus to portray an optimistic day. The second estimate of the US Gross Domestic Product (GDP) Annualized improved to -0.6% in the second quarter (Q2) versus -0.9% flash estimations and -0.8% market forecasts. Further, US Initial Jobless Claims dropped to the lowest levels in seven weeks, to 243K for the week ended on August 19 versus 253K expected and a revised down prior of 245K.

Further, Kansas City Fed President Esther George said on Thursday, "For the near-term thinking about higher interest rates seems reasonable to me." The policymaker also mentioned that (it’s) too soon to say what to expect in September (as) more key data coming. Philadelphia Fed President Patrick Harker was on the same line while he noted, per Reuters, that he wants to see the next inflation reading before deciding on the September rate decision but added that a 50 basis points rate hike would still be a substantial move. Also, Atlanta Fed President Raphael Bostic said to the Wall Street Journal (WSJ) that “at this point, I'd toss a coin between 50 bps and 75 bps,” adding that “if data remains strong and inflation doesn't soften, it may make a case for another 75 bps.

Additionally, China’s near one trillion stimulus and a holistic approach by the domestic institutions to safeguard the world’s second-largest economy also renewed market optimism earlier.

Looking forward, global markets may with the inactive session ahead of Fed Chair Powell’s speech at the Jackson Hole. However, the US Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, may entertain the traders. Forecasts suggest that the YoY print is to ease to 4.7% from 4.8% while the monthly figures may drop to 0.3% while 0.6% prior.