S&P500 Futures prod one-month low, yields grind higher as China fuels economic fears

• Market sentiment remains sour on China debt woes, geopolitical fears.
• S&P500 Futures lick its wounds at the lowest level in a month during five-day downtrend.
• Treasury bond yields approach yearly tops marked earlier in August.
• Fears emanating from China’s Country Garden, Zhongrong Trust propel debt woes.

The risk appetite remains downbeat during early Monday as weekend news from China suggests further hardships for the world’s second-largest economy, as well as for the global economic mechanism. Also challenging the sentiment are geopolitical concerns about Russia and the recently firmer US data, which in turn flags fears of the Fed’s rate hike in September even if the interest rate futures suggest no more Fed rate hikes.

While portraying the mood, the S&P500 Futures stay pressured at 4,480, fading the previous day’s corrective bounce off the lowest level in a month, whereas the US 10-year Treasury bond yields print a three-day uptrend to 4.18% as the bond bears eye the yearly peak marked earlier in the month.

As China’s Country Garden pauses its bond trading and a few companies from the Dragon Nation complain about not receiving payments from a subsidiary of Chinese conglomerate Zhongzhi Enterprise Group, the debt woes regain momentum. That said, the news of Country Garden’s restructuring of its debt drowned the company’s bonds to record levels and hence pushed the biggest Chinese realtor towards pausing the bond trading. On the same line, the talks of a liquidity crunch at the Zhongzhi Enterprise Group were out and loud previously and the latest actions confirm the market players’ fears.

Elsewhere, the US-China trade war and Russia’s firing of warning shots at a warship in the Black Sea also roil the market’s risk profile.

It should be noted that the firmer US Treasury bond yields and the recently upbeat US data allow the US Dollar Index (DXY) to remain firmer, which in turn weighs on the commodities and Antipodeans.

Talking about the data, the US Consumer Price Index (CPI) numbers for July failed to lift the Fed bets for September, suggesting the nearness to the policy pivot. However, the CPI details and other price pressure measures managed to keep the Greenback buyers hopeful. It’s worth noting that the US Producer Price Index (PPI) for July, the preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August and the UoM 5-Year Consumer Inflation Expectations for the said month helped the USD benefit on Friday. Further, the US one-year inflation outlook edged lower to 3.3% from 3.4%.

Furthermore, Federal Reserve (Fed) Governor Michelle Bowman backed additional rate hikes and defended the Fed hawks. However, San Francisco Fed Bank President Mary Daly, Philadelphia Fed Bank President Patrick Harker and New York Fed President John Williams signaled rate cuts in 2024 but also highlighted data-dependency and kept the policy doves looking for more details to confirm the bias.

Looking forward, China’s Industrial Production and Retail Sales for July, up for publishing on Tuesday, will be crucial to watch for initial directions ahead of Wednesday’s housing numbers. More importantly, Tuesday’s US Retail Sales for July and Wednesday’s Minutes of the latest Federal Open Market Committee (FOMC) monetary policy meeting will be crucial to watch for a better view.

Also read: China’s Country Garden, Zhongrong Trust renew debt market fears