S&P 500 Future, yields portray cautious mood as US President Biden hints at tough talks with China’s Xi

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  • Market sentiment fades previous optimism ahead of the key G20 updates.
  • US President Biden, China’s Xi will meet each other on the sidelines of G20 around 09:30 GMT.
  • Fed’s Waller cited the need more evidence to confirm bearish bias and stayed hopeful of 50 bps rate hike in December.
  • Talks of Fed’s pivot can keep optimists on the table if risk catalysts offer positive surprise.

After witnessing multiple days of optimism, markets remain sidelined, mildly offered, during Monday’s Asian session. The reason could be linked to the latest comments from US President Joe Biden and the Federal Reserve (Fed) Governor Christopher Waller. Also allowing the bulls to take a breather is the lack of major data/events.

While portraying the mood, the S&P 500 Futures retreat from a one-month high, down 0.30% intraday near 3,990, whereas the US 10-year Treasury yields rise six basis points (bps) to 3.89%, printing the first daily gains in four.

That said, Reuters quotes US President Biden as saying that the US communication lines with China would stay open to prevent conflict, with tough talks almost certain in the days ahead. The news also mentioned, “The United States would ‘compete vigorously’ with Beijing while “ensuring competition does not veer into conflict”, said Biden, stressing the importance of peace in the Taiwan Strait during an address to the East Asia Summit in Cambodia. He arrived in Bali on Sunday night.” On the same line, US Treasury Secretary Janet Yellen also mentioned, per Reuters, “Biden-Xi meeting aimed at stabilizing u.s. relationship with china, but have been clear about national security concerns.”

Elsewhere, Fed’s Waller said, “Rates will not fall until there is ‘clear, strong evidence’ inflation is falling.” The policymaker, however, also mentioned that the Fed can begin to consider moving at a slower pace.

It should be noted that the downbeat prints of US consumer-centric data allowed the US dollar bears to sneak in during the last week. Among them, the Consumer Price Index (CPI) and the first readings of the University of Michigan Consumer Confidence Index were the keys. Also likely to have improved the market sentiment was Moscow’s retreat from Kherson.

However, anxiety ahead of today’s gathering of the Group of 20 Nations (G20) in Bali appears to weigh on the market sentiment as US President Biden and his Chinese counterpart Xi Jinping will meet face-to-face for the first time in three years.

Given the sour geopolitical ties between Washington and Beijing, as well as talks that the UK and Europe could snub Russia, the risk-off mood is likely to prevail, which in turn could allow the US Dollar (USD) to pare recent losses. However, major attention will be given to the US Retail Sales and the Fedspeak for clear directions.