S&P500 Futures struggle to justify optimism in China, Hong Kong amid sluggish yields, pre-Fed anxiety

• Market sentiment improves early Tuesday but optimists await key central bank decision to bolster the bids.
• China stimulus, defense of Yuan via open market operations underpin latest optimism.
• Stocks in China, Hong Kong rally and help Asian equities to remain firmer but S&P500 Futures stays indecisive.
• US Treasury bond yields retreat from two-week high amid light calendar.

Headlines from China allow markets to turn optimistic early Tuesday even as the pre-Fed anxiety challenges the US stock futures and bond yields. That said, the recently downbeat PMIs renew hopes of a sooner end to the restrictive monetary policies and add strength to the upbeat sentiment. However, the cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements and a light calendar in Asia restricts the market moves of late.

While portraying the mood, stocks in China and Hong Kong rallied by nearly 3.0% on the day whereas the index of MSCI’s Asia-Pacific shares outside Japan also rise 1.50% intraday by the press time. Though, the S&P500 Futures remain sidelined near 4,580, struggling to extend the previous day’s recovery, whereas the US 10-year and two-year Treasury bond yields retreat from the highest levels in two weeks to 3.86% and 4.84% in that order.

Be it the People’s Bank of China (PBoC) or the state bank, the financial institutions from China defend the domestic currency and help build the market sentiment in the Asia-Pacific zone. Adding strength to the market’s optimism could be details of the Communist Party's Politburo meeting, held on Monday, that said the policymakers pledged measures to step up support for the economy amid a flagging post-COVID recovery, reported Reuters.

Elsewhere, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. That said, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Not only the US but downbeat PMIs from the rest of the major economies also allowed Wall Street to close on the positive side the previous day, as well as favored the US Treasury bond yields to refresh multi-day high. That said, the manufacturing activity data from Eurozone and Germany dropped to the lowest levels since 2020 while the PMIs from the UK, Australia and Japan were also suggesting fears of easy economic activities.

Looking forward, China stimulus news and the PBoC efforts may keep favoring the risk-on mood and weigh on the US Dollar. Though, the US CB Consumer Confidence for July, expected 112.1 versus 109.70 prior, and Wednesday’s Fed Chair Jerome Powell’s speech will be crucial to watch for clear directions.

Also read: Forex Today: Fresh highs for the DXY ahead of the Fed