S&P 500 Futures, yields portray market’s inaction amid off in China, anxiety ahead of US inflation

• Global markets witness a sluggish start to the week carrying US inflation.
• S&P 500 Futures struggles around two-week top, US 10-year Treasury yields retreat.
• Holidays in China, geopolitical/trade fears challenge previous risk-on mood.
• Light calendar could restrict market’s moves but challenges to sentiment may weigh on risk assets.

China’s extended weekend and a light calendar strengthen Monday blues at various bourses amid a mixed feeling over the previous risk-on mood. Also challenging the risk appetite, as well as the market moves, could be a caution ahead of the US inflation release.

While portraying the mood, the S&P 500 Futures struggle to extend the three-day uptrend around a fortnight top, easing from the intraday high of 4,094.50 of late. On the same line are the US 10-year Treasury yields, down one basis point (bp) to 3.31% at the latest.

Headlines suggesting US President Joe Biden’s readiness to hit China with broader curbs on US chip and tool exports seem to restrict the previously upbeat market sentiment. On the same line could be the analysis suggesting a 20-year low oil demand from China due to covid curbs, shared by Reuters. It’s worth mentioning that the fears emanating from the Russia-Ukraine crisis are also a negative for the riskier assets.

That said, comments from US Treasury Secretary Janet Yellen and some of the prominent Fed policymakers could also be considered as the risk-negative. US Treasury Secretary Janet Yellen mentioned that, during the CNN interview on Sunday, “Fed is going to need skill and luck to bring inflation down while maintaining labor market strength.” The policymaker also mentioned that US consumers could experience a spike in gas prices in winter when the European Union significantly cuts back on buying Russian oil.

Federal Reserve Governor Christopher Waller was the prominent one as he said on Friday that he supports another significant hike in two weeks. On the same line was Kansas City Fed President Esther George who said, as reported by Reuters, “Case for continuing to remove policy accommodation is clear cut.” Furthermore, Cleveland Federal Reserve Bank President Loretta Mester said, “One inflation report is insufficient to alter one's outlook.” The policymaker also stated that he sees policy rates rising slightly above 4% by early 2023.

It should be noted that the previously easing early signals of inflation from the key global economies and the central bankers’ readiness to take whatever measures need to overcome the economic challenge seemed to have triggered the risk-on mood earlier.

Moving on, China’s holiday and a light calendar at home could restrict the market’s moves on Monday. However, this week’s US Consumer Price Index (CPI) and Retail Sales for August, as well as the preliminary readings of the Michigan Consumer Sentiment Index for September, will be crucial for fresh impulse as the Fed policymakers are in a pre-meeting blackout.