- Global markets are witnessing a slow start to the week linked to US inflation.
- S&P 500 Futures Struggle Around Two-Week High, U.S. 10-Year Treasury Yields Fall.
- China holiday, geopolitical/trade concerns challenge prior risk sentiment.
- A light calendar could limit market moves, but sentiment issues could weigh on risk assets.
China’s long weekend and a light calendar are reinforcing Monday blues in various bourses amid mixed sentiment from earlier risk-on sentiment. Also, questioning risk appetite, as well as market movements, could be a warning for the US inflation release.
Portraying sentiment, S&P 500 Futures are looking to extend a three-day uptrend around the 14-day high and bear down from the recent intraday high of 4,094.50. US 10-year Treasury yields are in line, down one basis point (bp) to 3.31% at the latest.
Headlines suggesting US President Joe Biden is ready to hit China with broader restrictions on US chip and tool exports appear to be curbing previously positive market sentiment. In the same vein could be analysis suggesting a 20-year low in oil demand from China due to covid restrictions shared by Reuters. It is worth noting that concerns stemming from the Russian-Ukrainian crisis are also negative for riskier assets.
This means that the comments of US Treasury Secretary Janet Yellen and some top Fed policymakers can also be considered risk-negative. US Treasury Secretary Janet Yellen mentioned that during an interview with CNN on Sunday, “The Fed will need skill and luck to bring inflation down while maintaining the strength of the labor market. The politician also mentioned that American consumers could experience a sharp increase in gas prices in the winter, when the European Union will significantly reduce the purchase of Russian oil.
Federal Reserve Governor Christopher Waller was prominent when he said on Friday that he supported another major hike in two weeks. Along the same lines was Kansas City Fed President Esther George, who, according to Reuters, said “the case for continuing to remove policy accommodation is clear. Additionally, Cleveland Federal Reserve Bank President Loretta Mester said, “One inflation report is not enough to change our outlook.” The policymaker also said she expects key rates to rise slightly above 4% by early 2023.
It should be noted that earlier softening early signs of inflation from key global economies and the readiness of central bankers to take whatever measures are necessary to overcome the economic challenge appeared to have fueled risk-on sentiment earlier.
A Chinese holiday and a light calendar at home could limit market movements on Monday. However, this week the US Consumer Price Index (CPI) and retail sales for August, as well as preliminary data from the Michigan Consumer Sentiment Index for September, will be key to fresh momentum as Fed policymakers are in a pre-meeting shutdown.