S&P 500 Futures show cautiousness amid fluctuating yields

The market remains cautious on Wednesday as investors await the US ISM Services PMI. Concerns about China’s economy, fears of hawkish moves by the Federal Reserve, and Eurozone recession worries are likely contributing to the subdued risk appetite.

S&P 500 Futures are slightly down following yesterday’s negative close on Wall Street, hovering around the 4,500 level. Meanwhile, the US 10-year Treasury bond yields have stabilized near 4.26% after a significant increase the previous day.

The US Dollar Index is uncertain, trading near its highest level since March 15 at around 104.80, while Gold and WTI Crude Oil prices remain steady at $1,925 and $86.40 respectively.

Market sentiment is being weighed down by concerns over a potential China recession and economic slowdown in the Eurozone. This is further reinforced by positive US data and hawkish comments from Federal Reserve officials. Tensions between the US and China are also contributing to the risk aversion.

China’s Caixin Services PMI for August reached its lowest level this year at 51.8, adding to doubts about the effectiveness of the country’s economic measures.

Despite China’s efforts to support the economy post-COVID-19, the market has responded tepidly. News of China’s largest real estate developer, Country Garden, avoiding default has helped alleviate some concerns.

US Commerce Secretary Gina Raimondo has defended the current tariffs on China until a review is completed, contributing to the ongoing tension between the two countries.

In terms of data, US Factory Orders for July showed a decline, reaching the lowest level since mid-2020 with a monthly decrease of 2.1%. However, orders excluding transportation increased by 0.8%. Shipments remained strong, and inventories saw their first increase in three months.

Federal Reserve Governor Christopher Waller, in a recent interview, stated that future rate hikes would depend on data and emphasized the Fed’s preference for maintaining low rates.

Upcoming economic events include the US ISM Services PMI for August, the Bank of Canada’s Interest Rate Decision, and Eurozone Retail Sales for July. However, the market will closely watch for any major risk factors that could guide future market trends.