S&P 500 Futures retreat, yields dribble at multi-year top as markets await NFP

• Market sentiment portrays the typical pre-NFP inaction, light calendar adds strength to trading lull.
• S&P 500 Futures fade bounce off six-week low, two-year Treasury yields seesaw at the highest levels since 2007.
• US President Biden’s curbs to chip exports to China, covid woes in Beijing weigh on sentiment.
• Hawkish Fedbets test risk profile but downbeat hopes from NFP tease optimists.

Global markets remain dicey as traders wait for the US Nonfarm Payrolls (NFP) during early Friday. Even so, fears of recession and hawkish Fed bets keep the bears hopeful amid a sluggish Asian session.

While portraying the mood, the S&P 500 Futures drop 0.10% intraday while retreating to 3,966, after bouncing off the six-week low the previous day. Also, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

A covid-led lockdown in China’s Chengdu city joins downbeat Caixin Manufacturing PMI to portray grim conditions for the world’s second-largest economy and weigh on the sentiment. On the same line could be the escalating geopolitical tension between Beijing and Washington, via Taiwan. Furthermore, Reuters unveiled news suggesting that US President Joe Biden's curbs on chips to China are part of a broader effort.

On the other hand, firmer US data and hawkish Fedspeak joined pessimism surrounding China to underpin the US Treasury yields’ run-up, which in turn favored the US Dollar Index (DXY) to rise to the highest levels since 2002, mildly offered near 109.60 at the latest.

US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Also, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Moving on, market players will keep their eyes on the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors, for fresh impulse amid mounting calls of recession and central bank aggression.

Also read: Nonfarm Payrolls Preview: Five reasons to expect a win-win release for the dollar