S&P500 Futures fail to cheer pullback in yields amid China-inflicted debt woes

• Risk appetite appears unclear as traders pares weekly moves amid light calendar.
• S&P500 Futures lick its wounds at seven-week low, prods three-day downtrend but lacks recovery momentum.
• US 10-year Treasury bond yields retreat from multi-year high and trigger market’s consolidation.
• China’s Evergrande fuels debt woes by filing for bankruptcy proceeding in the US court, fears about Country Garden escalate.

Market sentiment remains dicey on early Friday as a pullback in the US Treasury bond yields allows the stock futures and Asia-Pacific shares to pare recent losses amid a sluggish trading day so far. Even so, the looming fears about China and global economic transition, as well as a shift in the Fed bias, prod the optimists.

While portraying the mood, S&P500 Futures rebound from the lowest level since June 27, marked the previous day, while stabilizing near the 4,385-90 zone as it prods the three-day losing streak. On the other hand, the US 10-year Treasury bond yields eased around three basis points (bps) in the last hour to 4.278%, reversing from the highest level since 2007 marked on Thursday.

Talking about the key risk catalysts, China’s second-large realtor, as well as the world's most heavily indebted property developer, Evergrande filed for protection from creditors in a US bankruptcy court on Thursday, per Reuters. The same escalate fears surrounding the world’s second-largest economy, as well as the global economic transition, as it battles with the slowing economic recovery and fuels concerns about the financial health of China’s biggest realtor, namely Country Garden. Amid these fears, top-tier US banks like JP Morgan and Barclays have recently cut China growth forecasts.

On the other hand, firmer United States statistics and the hawkish Fed Minutes could be linked to a shift in the market’s previously dovish bias about the US central bank. Even so, the CME’s FedWatch Tool signals a nearly 86% chance of the Fed’s no rate hike in September and prods the US Dollar bulls, which in turn allows the Gold bears to take a breather.

Among the recent US data, US Philadelphia Fed Manufacturing Survey marked the strongest print since April 2022, as well as the first positive outcome in a year, while rising to 12.0 for August from -13.5 prior and -10.0 expected. On the same line, the US Initial Jobless Claims also edged lower to 239K for the week ended on August 11 versus a revised up 250K prior and the market expectations of 240K. Earlier in the week, the US Industrial Production and Retail Sales for July marked surprising growth but the housing numbers were mixed.

That said, the latest Fed Minutes showed that most policymakers preferred supporting the battle again the ‘sticky’ inflation, despite being divided on the imminent rate hike, which in turn challenges the market’s previous policy pivot concerns about the US central bank.

With the dicey markets and a pullback in yields, the US Dollar Index (DXY) extends late Thursday’s retreat from a two-month high while the prices of Gold and Crude Oil pares recent losses. Furthermore, riskier assets like AUD/USD and cryptos also print mild gains at the latest.

Given the latest change in the market’s moves, especially amid a light calendar, traders will closely observe the risk catalysts for clear directions.

Also read: Forex Today: Dollar recovers after short-lived pullback, Wall Street slides again