S&P 500 Futures, yields rebound as hints of Biden-Xi talks trigger cautious optimism ahead of Fed

• Market sentiment improves amid hopes of positive solution from Thursday’s talks between Biden and Xi.
• S&P 500 Futures bounce off weekly low, US 10-year Treasury yields snap two-day downtrend.
• US Durable Goods Order, FOMC will be crucial for clear directions.

Risk profile improves during early Wednesday as traders brace for the Federal Open Market Committee (FOMC) meeting. Also allowing market consolidation is the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, on Thursday.

While portraying the mood, S&P 500 Futures bounced off the one-week low to 3,950, up 0.65% intraday, whereas the US 10-year Treasury yields rise 1.6 basis points (bps) to 2.80% at the latest.

Fears of recession, however, join the pre-Fed anxiety to exert downside pressure on the risk appetite. That said, the Fed is up for a 75 bps rate hike during today’s FOMC. That said, the markets also chatter around 100 bps move amid heavy inflation. However, the recession fears challenge Fed Chair Jerome Powell’s capacity to tame inflation and still keep the growth prospects intact.

It should be noted that fears of economic slowdown intensified after the International Monetary Fund (IMF) cut its global growth forecast (once again) this year, to 2.9% from 3.6% forecasted in April. The Washington-based organization also raised concerns over more economic hardships amid a full cut-off of Russian gas to Europe and a 30% drop in Russian oil exports, both of which are looming. It should be noted that the disappointing results from the global retailer Walmart also contributed to the recession fears.

Talking about the data, the US CB Consumer Confidence fell for a third consecutive month in July, to 95.7 from 98.4 prior. Further, the US New Home Sales dropped to 0.59M for June versus 0.66M expected and 0.642M previous readout. On the same line, Richmond Fed Manufacturing Index rose to the highest level since April, to 0 from -13 expected and -9 prior (revised up from -11).

Looking forward, the US Durable Goods Orders for June, -a 0.4% forecast compared to 0.8% prior, could try to entertain traders, together with the chatters surrounding the US-China talks. However, major attention will be given to the Fed’s verdict and Chairman Jerome Powell’s press conference.