S&P 500 Futures, yields retreat from monthly tops as Fed hawks resist cheering softer inflation

• Market sentiment remains divided amid a light calendar, mixed clues.
• S&P 500 Futures extend pullback from three-month high, yields snap three-day uptrend at 12-day peak.
• Softer PPI, CPI fail to reject Fed hawks, China headlines, recession also test optimism.

After an upbeat mid-week, global markets remain sluggish as they await the final dossier of the key data during Friday’s Asian session. Also keeping the traders on their toes are the mixed feelings surrounding inflation and growth, not to forget fears of geopolitical and trade tussles.

While portraying the mood, Wall Street began Thursday on a positive side before closing mixed while the US 10-year Treasury yields rallied 10 basis points (bps) to 2.88% at the latest. It’s worth noting that the S&P 500 Futures remains indecisive around 4,215 and the US Treasury yields remain firmer by the press time.

Starting with the inflation, US Producer Price Index (PPI) for July tracked the headline Consumer Price Index (CPI) while easing to 9.8% YoY versus 11.3% prior and 10.4% market forecasts, the data published by the US Bureau of Labor Statistics revealed on Thursday. That said, the monthly PPI dropped to the lowest levels since May 2020, to -0.5% compared to 1.0% expected and 0.2% prior, which in turn signaled more easing of inflation fears.

In addition to the receding inflation woes, the softer prints of the US Weekly Jobless Claims also portrayed improvement in the employment scenario, tracking the recent job numbers from the world’s largest economy, which in turn helped to build the risk-on mood. That said, US Initial Jobless Claims eased to 262K for the week ending August 6 versus 263K expected and downwardly revised 248K prior.

Even so, President and Chief Executive Officer of the Federal Reserve Bank of San Francisco Mary Daly mentioned that she is open to a 75bps rate hike in September. Previously, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

On a different page, US President Joe Biden’s pause in announcing tariff relaxations to China, actually the removal of the Trump-era tariffs, gain major attention and renew the Sino-US tussles to weigh on the market sentiment. Additionally, Additionally, a jump in the coronavirus cases from China, to 700 new confirmed cases in the mainland on August 10 versus 444 a day earlier, also roil the sentiment. Furthermore, Taiwan’s criticism of the “One China” policy and US House Speaker Nancy Pelosi’s support for Taipei also challenged the market optimism.

It should be noted that the cautious mood ahead of the preliminary readings of the UK’s second quarter (Q2) Gross Domestic Product (GDP) and the US Michigan Consumer Sentiment Index (CSI) for August also challenge the market’s optimism.

To sum up, recently softer US inflation data fail to keep the markets happy for long, which in turn highlights today’s scheduled statistics for fresh impulse.