S&P 500 Futures ease, yields rebound as full markets test previous optimism

• Market sentiment remains fragile, recently downbeat, as traders doubt China stimulus’ capacity to defend economic recovery.
• S&P 500 Futures, yields extend post-NFP moves as markets await more clues about Fed.
• US Factory Orders, risk catalysts eyed for clear directions.

Market sentiment fades the previous optimism as traders seek more clues amid a light calendar, as well as appear unconvincing about China’s ability to defend the economic recovery. Also challenging the mood could be the latest rebound in the US Treasury bond yields and receding hopes of recovery in China’s struggling reality sector.

Amid these plays, the S&P 500 Futures print mild losses around 4,515, down 0.15% intraday after reversing from a one-month high the previous day. On the other hand, the US 10-year Treasury bond yields rose two basis points (bps) to 4.20% after a holiday-driven inaction.

Early Tuesday, China’s Commerce Ministry pledged to support the qualified enterprises to make good use of domestic and overseas listing, as well as bond issuance. On the same line was softer China Caixin Manufacturing PMI for August, to 51.8 from 54.1 prior.

That said, China’s readiness for opening up the services industry, as well as developments of the manufacturing activities, joined a slew of measures to cut mortgage rates and infuse more liquidity to keep the Asia-Pacific markets hopeful. On the same line could be the optimism about China’s struggling reality firm Country Garden, after it managed to gain approval from creditors to delay the debt payments of around 3.9 billion Yuan ($536 million).

On a different page, Friday’s upbeat US data and hawkish Fed talks underpin the rebound in the US Treasury bond yields and the US Dollar, as well as prod the market’s optimists. That said, United States Nonfarm Payrolls (NFP) for August initially renewed hawkish bias about the Fed, even if the Unemployment Rate and Average Hourly Earnings kept the policy pivot concerns on the table afterward. Following that, the global rating agency Moody’s revised up the US Gross Domestic Product (GDP) predictions for 2023 to 1.9% versus 1.1% expected in May.

It’s worth noting that the market’s bets on the Federal Reserve’s (Fed) status quo in September contrast with a recent improvement in the odds favoring a rate hike during late 2023 seems to weigh on the sentiment. Further, Federal Reserve Bank of Cleveland President Loretta J. Mester defended the US central bank’s hawkish move and ruled out the rate cut bias in her speech on Friday, which in turn prod the Gold buyers.

Furthermore, the market’s lack of confidence in the Chinese measures to defend the economy, as well as the Sino-American tension, recently over Taiwan and the US businesses’ discomfort in Beijing, prod the optimism, which in turn challenges the sentiment.

Moving on, the risk catalysts and the US Factory orders for July will be important for fresh impulse.

Also read: Forex Today: Quiet markets, focus turns to the RBA