US 10-year Treasury yields refresh three-year high, S&P 500 Futures drop 1.0% as risk-aversion intensifies

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  • Market sentiment sours as fears of faster monetary policy tightening joins risk-negative headlines from China, G7.
  • Firmer US NFP propels odds of faster/heavier rate hikes and highlights US inflation.
  • China’s Shanghai announces more measures to curb covid spread, G7 nations sanction Russia.

Although Friday’s US jobs report refrained from major disappointment, global markets remain risk-averse as hopes of faster, as well as heavier, rate hikes remain firmer ahead of this week’s key US inflation data. Also challenging the market sentiment are the headlines from the Group of Seven (G7) nations and China.

While portraying the mood, the US 10-year Treasury yields rise to a fresh high since November 2018, up three basis points near 3.15%, whereas the S&P 5600 Futures drop 1.0% by the press time.

That said, the US Nonfarm Payrolls (NFP) reprinted the 428K figures, if compared to the revised figures for March, by surpassing the 391K forecasts. On the same line, the Unemployment Rate also remained intact at 3.6%. The absence of major disappointment from the US jobs report seemed to have capped the risk-off during late Friday. However, a second reading hints at more risk of tighter monetary policy, as well as the pre-inflation release anxiety, to spoil the risk profile.

Following the data, Minneapolis Fed President and FOMC member Neel Kashkari said in a blog post on Medium, “Given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels.”  The policymaker also said his assessment of the nominal neutral rate of interest is still that it is around 2.0%. It’s worth noting that the President of the Federal Reserve Bank of St. Louis James Bullard reiterated his bullish bias and pushed the Fed towards a 3.5% rate.

It’s worth noting that the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, struggle to remain firmer after refreshing the record top in the last week. The same challenges the USD bulls ahead of the key inflation data, up for publishing on Wednesday.

Elsewhere, G7 nations met during the weekend and announced further sanctions on Russian oil, as well as services. “After meeting virtually with Ukrainian President Volodymyr Zelensky, the leaders said they would cut off key services on which Russia depends, reinforcing the isolation of Russia “across all sectors of its economy,” said Reuters. Also portraying the risk-off mood was news from China as Shanghai announced fresh activity restriction measures due to the worsening covid conditions.

Moving on, global markets are likely to remain pressured ahead of Wednesday’s US Consumer Price Index (CPI) data, which in turn could keep the US Treasury yields and the US dollar on the front foot while weighing on the riskier assets like commodities and Antipodeans.

Read: Week Ahead on Wall Street: Employment report to fails to calm equities as bears still in control