- Market sentiment improves amid expectations of better US-China ties, mixed concerns about Fed.
- S&P500 Futures revere pullback from weekly top, yields retreat from multi-year high.
- Likely talks between the US and China, expectations of more stimulus from Beijing allow traders to position for PMI.
- US housing data, Fed talks and qualitative factors are extra catalysts to watch for fresh impulse.
The risk appetite improves on early Wednesday as the headlines surrounding the US-China ties join the market’s positioning for the preliminary readings of the August month Purchasing Managers Indexes (PMIs) for major economies. While portraying the mood, S&P500 Futures rise 0.20% intraday to near 4,410 as it reverses the previous day’s pullback from the weekly top. Furthermore, the US 10-year Treasury bond yields dropped two basis points (bps) to 4.31% while extending the previous day’s U-turn from the highest level since 2007.
Late Tuesday, the US Commerce Department mentioned Commerce Secretary Gina Raimondo’s meeting with the Chinese Ambassador, as well as the Vice Foreign Minister, Xie Feng, scheduled for the next week. The news states that the policymakers had a ‘productive discussion’ ahead of her trip to China. Earlier in the week, the US Commerce Department’s Bureau of Industry and Security (BIS) also removed 27 Chinese entities from its Unverified List, removing sanctions from those entities and flagging hopes of improving US-China ties.
Alternatively, mixed concerns about the economic recovery in China and the recently firmer US Dollar cap the market’s optimism, especially amid pre-data anxiety.
That said, US Dollar Index (DXY) retreats from the 10-week high marked Friday, around 103.50 at the latest, as improvements in the US Existing Home Sales for July and the Richmond Fed Manufacturing Index for August join firmer Treasury bond yields. That said, the US Existing Home Sales came in as -2.2% MoM versus -3.3% prior while the Richmond Fed Manufacturing Index matched -7.0 market forecast compared to -9.0% previous readings.
It should be noted that Federal Reserve Bank of Richmond President Thomas Barkin emphasized achieving the 2.0% inflation target while challenging the US recession concerns by stating, per Reuters, “If the US were to have a recession, it would likely be a ‘less-severe’ one,” which in turn prods the risk-on mood. The policymaker also added, “Fed must be open to the possibility that the economy will begin to reaccelerate rather than slow, with potential implications for the US central bank’s inflation fight.”
Elsewhere, Australia’s PMIs and New Zealand’s quarterly Retail Sales came in downbeat but the Japanese PMIs for August improves and joins the softer yields to favor the Yen (JPY).
Looking ahead, the preliminary readings of the US PMIs for August and Existing Home Sales for July will join the updates about the aforementioned risk catalysts to entertain the traders. Talking about the consensus, the US S&P Global Manufacturing PMI is likely to improve to 49.3 from 49.0 but the Services counterpart may edge lower to 52.2 versus 52.3 prior. As a result, the S&P Global Composite PMI is expected to reprint the 52.0 number and can test the Aussie pair buyers. Above all, Friday’s Jackson Hole Symposium is the key event that can offer clear directions.