S&P 500 Futures, Treasury bond yields portray risk aversion amid US-China tension, Fed concerns

• Market sentiment remains downbeat as China-linked fears join fresh hawkish concerns over Fed.
• S&P 500 Futures extend pullback from the late August 2022 peak.
• US 10-year Treasury bond yields grind higher after posting the biggest weekly gains in a year.
• Fed Chair Powell’s speech, US consumer sentiment data eyed for clear directions.

Risk profile remains weak as traders take a breather after a volatile week. That said, fears emanating from China and the US data keep the bears hopeful during early Monday.

While portraying the mood, S&P 500 Futures extend the previous day’s pullback from the highest levels since August, down 0.30% intraday near 4,140 by the press time. On the same line, the US 10-year Treasury bond yields remain firmer for the third consecutive day, to 3.56% by the press time, following the biggest weekly jump since late September 2022.

The sour sentiment could be linked to the weekend headlines suggesting the US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina. The same renews the Sino-American tension ahead of US Secretary of State’s visit to Beijing. “China protested the response as an ‘obvious overreaction’,” said Reuters.

On the other hand, the Fed announced 0.25% dovish rate hike but managed to regain the hawks’ attention following the strong US jobs report and activity data. That said, the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, versus 185K expected and 260K (upwardly revised) prior. It’s worth noting that the Unemployment Rate also dropped to 3.4% from 3.5% prior and 3.6% expected but the Average Hourly Earnings eased during the stated month. Furthermore, the rebound in the US ISM Services PMI from 49.2 to 55.2, versus 50.4 expected, also underpinned the rebound in the United States Treasury bond yields and the US Dollar.

That said, the US Dollar Index (DXY) extends the previous weekly rebound from the lowest levels since April 2022 while prices of Crude oil and Gold remain pressured amid the risk-off mood.

It should be noted that stocks in China see the red as the headlines China A50 drops over 2.0% while Hang Seng is also down 1.90% by the press time.

Moving on, updates from this week’s US diplomat’s visit to China will be more important for immediate directions ahead of Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel. Following that, Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations, will be crucial for fresh impulse.