S&P500 Futures, yields stabilize despite US-China jitters, hawkish Fed clues ahead of Powell’s testimony

• Market sentiment remains dicey as traders await top-tier events of the week.
• S&P500 Futures pause two-day downtrend, yields lick their wounds amid light calendar in Asia.
• US-China tussle intensifies after Biden’s comments, Fed hawks remain hopeful as Chairman Powell braces for bi-annual Testimony.

The risk profile remains unclear during early Wednesday, after witnessing sour sentiment the previous day. That said, the market’s cautious mood could be linked to the anxiety ahead of the week’s key data/events.

While portraying the risk appetite, S&P500 Futures pause the week-start retreat from the highest levels in 14 months, mostly inactive near 4,436 by the press time, whereas the US 10-year Treasury bond yields pare Tuesday’s losses around 3.74% at the latest.

If we trace the key catalysts, geopolitical fears surrounding the US and China will join the hawkish central bank comments and mixed data. Also likely to have favored the intraday traders in consolidating the previous moves are China’s efforts to push back the recession woes. That said, China’s Ministry of Finance (MoF) recently announced its intention to take drastic measures while cutting the purchase tax during 2024-25 and 2026-27. The same joins the market's concerns that the US data hasn’t been too impressive to allow the bears to take a breather.

Alternatively, China’s Ministry of Foreign Affairs (MoFA) said that the US has distorted its political promise to China. It’s worth noting that US President Joe Biden termed Chinese President Xi Jinping a dictator and flagged concerns of intense Sino-American tension earlier in the day.

Furthermore, officials from the European Central Bank (ECB) and the Federal Reserve (Fed) have been mostly hawkish despite witnessing the mixed data, especially in Germany, and weigh on the sentiment.

On Tuesday, multiple Fed Nominees backed higher rates while the ECB Officials tried to push back concerns that the bloc’s central bank is approaching the policy pivot. It should be observed that the US housing numbers were too upbeat on Tuesday while the German Producer Price Index (PPI) printed disappointing data.

Amid these plays, the US Dollar Index (DXY) take a breather after a three-day downtrend whereas the Gold Price printed mild gains after breaking the key support during the previous losing streak.

Looking ahead, UK inflation and speeches from multiple central bankers from the US, Europe and the UK may entertain the traders. However, Fed Chair Jerome Powell’s bi-annual testimony will be crucial to watch for clear market directions.

Also read: Forex Today: US Dollar bulls fight back