S&P500 Futures, yields retreat on US credit rating downgrade, market consolidation ahead of key US data

• Market sentiment remains mildly offered amid fears emanating from US credit rating downgrade, cautious mood ahead of US statistics.
• S&P500 Futures drop for the second consecutive day but lacks follow-through of late.
• US Treasury bond yields fade the previous day’s corrective bounce.
• Asian stocks drop, US Dollar retreats and commodities edge higher ahead of US ADP Employment Change for July.

The risk profile remains downbeat during early Wednesday as market players struggle to determine the effects of the US credit rating cut before the US ADP Employment Change release for July. Also troubling the traders could be the recently mixed US data and statements from the Federal Reserve (Fed) officials.

While portraying the mood, the S&P500 Futures printed a 0.40% intraday loss to 4,590, down for the second consecutive day after Wall Street closed mixed, whereas the US 10-year Treasury bond yields retreat from a three-week high to 4.03% by the press time. It’s worth observing that the US two-year Treasury bond yields drop 0.16% intraday to 4.90% as we write.

Furthermore, the US Dollar Index (DXY) stays defensive around 102.00, recently picking up bids, as it prints the first daily loss in three after refreshing the highest levels since July 10 the previous day. With this, the Gold price prints mild gains while the crude oil jumps to a fresh high since April 17. Even if the US Dollar retreats and the recently firmer commodities, the Antipodeans appear pressured.

Additionally, stocks in the Asia-Pacific zone trade mixed with Japan’s Nikkei falling more than 1.5% while Chinese equities also print the red. However, shares in Australia and New Zealand print mild gains by the press time and prod the bears.

That said, Fitch Ratings downgrades the US government credit rating from AAA to AA+ while terming fears of the debt crisis as the key catalysts. Following the announcements, the White House and US Treasury Secretary Janet Yellen rushed to criticize the move and defend the US Dollar but failed of late. However, the recent market chatters, mainly from big bankers, suggest that such a rating cut is less likely to have a major negative impact on the US fundamentals and hence recently challenge the risk-off mood.

Apart from that, the mixed US data and the Fed talks also prod the traders ahead of the US ADP Employment Change for July, expected 189K versus 497K prior. On Tuesday, US ISM Manufacturing PMI for July improves to 46.4 from 46.0 prior, versus 46.8 expected. Further details unveil that ISM Manufacturing Employment Index slumped to 44.4 from 48.0 expected and 48.1 prior whereas the ISM Manufacturing Price Paid for the said month rose to 42.6 from 41.8, compared to 42.8 market forecasts. Elsewhere, the US JOLT Job Openings for June also eased to 9.582M compared to 9.62M expected and 9.616M previous readings (revised). 

During the late Tuesday, Atlanta Federal Reserve Bank President Raphael Bostic crossed wires via Reuters while ruling out the need for a September rate hike while warning of the risk of over-tightening. Before him, Chicago Federal Reserve Bank President Austan Goolsbee sought more proof of inflation easing to support the end of rate hikes.

Elsewhere, mixed earnings from Wall Street giants and receding fears of higher rates from the top-tier central banks entertained the market players as they brace for Thursday’s Bank of England (BoE) monetary policy meeting announcements and Friday’s US Nonfarm Payrolls (NFP).

Also read: Forex Today: Dollar remains strong ahead of more jobs data