S&P500 Futures, yields consolidate banks, China induced losses as markets brace for US inflation

• Market sentiment improves on early Thursday amid receding fears of China deflation, risk-positive news from US.
• S&P500 Futures print mild losses after refreshing monthly low.
• US Treasury bond yields remain pressured as markets await US inflation data.
• Moves by global rating agencies, Italy joined looming default of China’s top realtor to previously fuel risk aversion.

The risk appetite surprisingly improves a bit on early Wednesday as market players seek solace in China’s mixed inflation data, as well as receding fears of the Sino-US tussles. Even so, the looming concerns about the global banking sector and real estate players from Beijing prod the optimists ahead of the key US inflation clues.

While portraying the mood, S&P500 Futures remains mildly bid around 4,520 by the press time, defending the latest rebound from the lowest level in a month marked the previous day. That said, the US 10-year Treasury bond yields dropped to the weekly low of around 3.98% before bouncing off 4.03% by the day’s end.

Recently, an improvement in China’s Producer Price Index (PPI) for July superseded negative readings of the Consumer Price Index (CPI) for the said month to favor market stabilization. That said, CPI declines to -0.3% YoY versus -0.4% YoY expected and 0.0% prior whereas the PPI improves to -4.4% YoY compared to -4.1% YoY market forecasts and -5.4% previous readings.

Elsewhere, the latest risk-positive news from the Biden Administration, cited by Bloomberg, also allows the traders to lick their wounds at the multi-day low. “The US plans to target only those Chinese companies that get more than 50% of revenue from the sectors including quantum computing and artificial intelligence (AI),” said the news.

Previously, Italy’s surprise tax on windfall profits of banks joined the global rating agencies’ downward revision to the US banks and financial institutions to weigh on the risk sentiment. On the same line could be fears of the UK recession and slowing economic growth in China.

On Tuesday, US Goods and Services Trade Balance for June came in at $-65.5B versus the $-65B expected and $-68.3B prior whereas the NFIB Optimism Index for July improved to 91.9, the highest in nine months, from 91.0 previous readings and 90.6 market forecasts. Further, US IBD/TIPP Economic Optimism for August eases to 40.3 from 43.0 market forecasts and 41.3 prior whereas Wholesale Inventories for June dropped to -0.5% versus the analysts’ estimations of reprinting the -0.3% figures.

Following the data, Philadelphia Federal Reserve Bank President Patrick Harker advocated Fed’s policy pivot while saying, per Reuters, “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.” On the other hand, Richmond Fed President Thomas Barkin stated that the Gross Domestic Product (GDP) remained "solid". 

Moving on, a lack of major data/events may allow the traders to consolidate the weekly loss before Thursday’s Australia Consumer Inflation Expectations for August and the all-important US CPI.

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