S&P500 Futures, yields edge higher on China, Fed concerns as markets brace for Jackson Hole

• Market sentiment remains sluggish as China tries to tame pessimism via multiple steps but fails to gain acceptance of late.
• Traders struggle over Fed Chair Powell’s speech at Jackson Hole after mostly upbeat US data prod policy pivot concerns.
• S&P500 Futures bounce off nine-week low, yields reverse Friday’s pullback with mild gains.
• PMIs, central bankers will be in the spotlight as risk aversion fades.

The risk appetite improves a bit on early Monday as traders prepare for this week’s annual central bankers’ speeches at the Jackson Hole. Also likely to have favored the market sentiment could be the headlines suggesting more stimulus from China, as well as the People’s Bank of China’s (PBoC) rate cut. However, mixed concerns about the Federal Reserve (Fed) Chairman Jerome Powell’s monetary policy bias on Friday seem to prod the momentum amid a light calendar.

While portraying the mood, the S&P500 Futures print mild gains around 4,390 to extend the previous day’s rebound from the lowest level since mid-June. On the same line, the US 10-year Treasury bond yields also reverse Friday’s retreat by rising back to 4.28% at the latest. It’s worth noting that Wall Street closed mixed on Friday whereas the US Treasury bond yields retreat after poking the yearly high.

Talking about China, the People’s Bank of China (PBOC), lowered the one-year Loan Prime Rate (LPR) to 3.45% from 3.55% previous and 3.40% expected. However, the Chinese central bank kept the five-year LPRs unchanged at 4.20%. In the last week, the PBoC cut the Medium-term Lending Facility (MLF), Standing Lending Facility rates (SLFs) and Reverse Repo Rates to infuse liquidity into the world’s second-largest economy.

Also, Chinese state media Xinhua came out with the news suggesting the authorities plan to introduce subsidies for fertilizers and pesticides in the northern region of the nation, per Reuters. On the same line, the weekend news from China suggests the dragon nation’s more efforts to infuse liquidity into the world’s second-largest economy, which in turn triggered the market’s cautious optimism during early Monday.

On the other hand, Goldman Sachs expects Fed Chair Powell to sound defensive during the annual event of the central bankers but the Bank of America (BofA) expects Fed’s Powell to push back against the rate cut expectations. The reason for these banks’ indecision could be linked to the recently mixed US data and the previous bias about the policy pivot.

Upbeat US NY Fed Manufacturing Index, Retail Sales and wage growth allowed the US Dollar to remain firmer for the fifth consecutive week, especially backed by the hawkish Fed Minutes. That said, the latest Fed Minutes showed that most policymakers preferred supporting the battle again the ‘sticky’ inflation, despite being divided on the imminent rate hike. Additionally, the market players started reassessing previous biases about the major central banks and added strength to the risk aversion, primarily fuelled by the China-linked woes. That said, investors anticipated that the end of the rate hike cycle is still unclear, which means more bearish pressure on riskier assets and a rush for the US Dollar.

Moving on, the preliminary readings of August month’s Purchasing Managers Indexes (PMIs) and the central bankers’ speeches at the annual Jackson Hole Symposium event will be crucial to watch amid indecision about the “higher for longer” rates.

Also read: Forex Today: Pound outperforms; Turn for central bankers to speak