S&P 500 Futures drop, US 10-year Treasury yields renew four-month low amid recession, China concerns

• Market sentiment roils as economic slowdown fears join risk-negative headlines surrounding China.
• Mixed US data, recently hawkish Fedspeak also spoil the mood.
• S&P 500 Futures extend pullback from two-month high, US 10-year Treasury yields print five-day downtrend to refresh multi-day low.

The risk profile deteriorates during Tuesday’s Asian session, extending the previously sour sentiment, as recession woes join headlines surrounding China.

While portraying the mood, the S&P 500 Futures stretch the previous day’s pullback from the highest levels since early June while the US 10-year Treasury yields drop to the lowest levels in four months. That said, the US equity futures gauge drops 0.30% intraday to 4,107 at the latest whereas the benchmark US bond coupon declines 6.4 basis points (bps) to 2.54% by the press time.

It’s worth noting, however, that the US Dollar Index (DXY) fails to cheer the risk-aversion wave as it drops to the fresh low in a month as bears approach 105.00 mark at the latest.

That said, the recently disappointing US PMIs joined the last week’s US Gross Domestic Product (GDP) to portray economic fears for the US. On Monday, the US ISM Manufacturing PMI dropped to the lowest since 2020 in July as the activity gauge dropped to 52.8 versus 53.0 prior. However, the actual figures were better than the 52.0 market forecast. Also, final readings of the US S&P Manufacturing PMI eased below 52.3 initial estimates to 52.2, compared to 52.7 prior.

Also weighing on the mood could be Fed Chair Jerome Powell’s indirect signals that the hawks are running out of steam.

Elsewhere, Reuters quotes three sources familiar with the matter to mention that US House of Representatives Speaker Nancy Pelosi was set to visit Taiwan on Tuesday as the United States said it wouldn't be intimidated by Chinese threats to never "sit idly by" if she made the trip to the self-ruled island claimed by Beijing. Furthermore, the news suggests that the US is considering limiting shipments of American chipmaking equipment to memory chip makers in China. Additionally, a Chinese media report suggesting the dragon nation’s readiness for a military drill in Bohai, South China Sea, also raises alarms of the fresh Sino-American tussles over the diplomatic issue.

Looking forward, headlines surrounding China and the recession will be important for the market sentiment ahead of Wednesday’s US ISM Services PMI for July and Friday’s US jobs report. That said, speeches from Chicago Fed President Charles L. Evans and President of the Federal Reserve Bank of St. Louis James Bullard will be important for intraday directions.