S&P 500 Futures, yields portray sour sentiment amid concerns over China’s zero-covid policy, Fed’s next move

• Global markets turn risk-averse as China defends zero-covid policy.
• Fedspeak, mixed US employment data also strengthen the cautious mood.
• S&P 500 Futures fades the bounce off fortnight low, struggle for clear directions around multi-day high.
• China trade numbers, Fedspeak could entertain traders but US inflation data is the key to clear directions.

The fresh week fails to extend the previous day’s risk-on mood amid fears surrounding China’s covid policy, as well as indecision over the US Federal Reserve’s (Fed) next move. That said, the recent headlines suggesting China’s readiness to implement policies to boost private investments seem to restrict the bearish play amid Monday’s Asian session.

While portraying the mood, the S&P 500 Futures retreat to 3,750, fading the previous day’s rebound from the lowest level in two weeks. On the same line, the US Treasury yields remain sluggish around the multi-day highs printed the previous day. That said, the US 10-year Treasury yields seesaw around 4.15% whereas the two-year counterpart takes rounds to 4.68% at the latest. It should be noted that Wall Street marked gains amid the market’s hopes of witnessing easy covid-led restrictions from China, as well as mixed US data and downbeat Fedspeak.

During the weekend, China’s National Health Commission (NHC) told, per Reuters, that the nation will persevere with its "dynamic-clearing" approach to COVID-19 cases as soon as they emerge. The news also added that measures must be implemented more precisely and meet the needs of vulnerable people.

''An unverified social media post last week, and a report authorities were working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, boosted investor hopes that China’s pandemic policy may soon be loosened,'' Bloomberg reported. 

Furthermore, chatters that China President Xi Jinping warned Russian President Vladimir Putin over the usage of nuclear technology in the war against Ukraine also weigh on the sentiment. On the same line was the news from the Wall Street Journal (WSJ) suggesting that a senior White House Official is involved in undisclosed talks with top Putin aides.

On the positive side, updates from China's state planner, suggesting further improvement in the nation's policy environment to encourage the development of private investments, should have restricted the market’s pessimism.

On Friday, hopes that China will ease the virus-led activity restriction joined the mixed US employment data and Fedspeak to improve the mood. ''An unverified social media post last week, and a report authorities were working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, boosted investor hopes that China’s pandemic policy may soon be loosened,'' Bloomberg reported. 

That said, the US employment report for October flashed mixed results. That said, the headline Nonfarm Payrolls (NFP) arrived at 261K versus 200K expected and 315K upwardly revised prior. However, the Unemployment Rate surprised markets by rising to 3.7% compared to 3.5% previous readings and 3.6% market forecasts. “Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting despite strong jobs data,” mentioned Reuters.

To sum up, the market’s latest sentiment should help the traditional risk-safe assets and highlight updates from China and the Fed policymakers as the key catalysts. However, this week’s US Consumer Price Index (CPI) for October appears more important than ever amid pivot talks.