• Market sentiment remains divided even as stock futures, yields pare recent moves.
• Recession fears, hawkish Fed bets underpin risk-aversion wave.
• Headlines surrounding Russia exert fresh pressure on sentiment.
• Preliminary readings of August PMIs will decorate intraday calendar, Powell’s speech at Jackson Hole is the key.

The risk profile remains sour, despite the latest inaction, as recession woes join the increased expectations of the Fed’s aggressive rate hikes. It’s worth noting that the absence of major data/events, as well as the cautious mood ahead of the monthly PMIs, seem to have allowed the bears to take a breather during early Tuesday in Asia.

That said, the US 10-year Treasury yields retreat from the monthly high of 3.04% while the S&P 500 Futures dribble around a two-week low, down 0.16% intraday near 4,145 by the press time. With this, the US Dollar Index retreats from a six-week high flashed the previous day, down 0.08% around 108.88 by the press time, whereas prices of gold and WTI crude oil print mild gains.

The recently escalating geopolitical tension surrounding Russia and Ukraine joins increasing hawkish Fed bets to keep optimists off the table despite the latest pause in the risk-off mood. The corrective move is likely to have taken clues from China as the local media hints at more stimulus from the People’s Bank of China (PBOC). Also likely to favor the moves could be the consolidation ahead of today’s preliminary readings of the US PMIs for August, as well as a speech from Fed Chair Jerome Powell at the annual Jackson Hole Symposium.

Recession woes gained momentum after Russia’s unscheduled maintenance of the Nord Stream 1 pipeline unveiled a three-day blow to the struggling Eurozone economy amid the energy crisis.

While justifying the same, a monthly report from Bundesbank mentioned that a recession in Germany is increasingly likely. The report also suggested that inflation will continue to accelerate and could peak at more than 10%. Before that, Bundesbank President, as well as the European Central Bank (ECB) policymaker, Joachim Nagel mentioned that the ECB must keep raising interest rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high all through 2023.

On the other hand, strong US activity data helped Reuters to cite hawkish Fed bets. Chicago Fed National Activity Index improved to 0.27 in July, from a downwardly revised -0.25 prior. “Fed funds futures on Monday have priced in a 54.5% chance of a 50 basis-point (bp) rate hike at the Fed's policy meeting next month. The fed funds rate is seen hitting roughly 3.6% by the end of the year, with a peak rate of nearly 3.8% in March 2023,” mentioned Reuters following the latest market data.

It should be observed that the market’s latest move need validation and hence shouldn’t be relied upon as a trend change signal ahead of the key data/events.