US Treasury yields drop back below 3.0% but S&P 500 Futures refresh yearly low on mixed signals, risk-off

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  • US Treasury yields extend the previous day’s pullback from two-year high.
  • S&P 500 Futures track Wall Street’s losses to renew 2022 low.
  • Mixed Fespeak, China’s stand on zero covid policy and absence of major negative from Russia test bears of late.

Global market sentiment dwindles during early Tuesday, having witnessed a stellar show of pessimism the previous day, as bears take a breather amid mixed clues and a light calendar. Also probing the latest moves could be a light calendar in Asia and anxiety ahead of Wednesday’s US Consumer Price Index (CPI) data for April.

While portraying the mood, the US 10-year Treasury yields drop nine basis points (bps) to 2.99% whereas the S&P 500 Futures drops half a percent to renew the yearly low around 3,965. It’s worth mentioning that the benchmark US Treasury yields rallied to the fresh high since November 2018 the previous day whereas Wall Street saw the red amid broad fears of inflation and growth, not to forget the downbeat headlines concerning covid and the Russia-Ukraine crisis.

That said, mixed comments from the Fed policymakers could be spotted as weighing on the Treasury yields of late. While Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table, Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts.

Also likely to have eased the pessimism are comments from China’s Vice Premier Liu He who reiterates the country’s dynamic covid zero policy.

Additionally, a fall in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also helps bears to take a breather. That said, the inflation gauge the most in 10 months to retest early March levels by the end of Monday’s North American trading session.

Even so, the inflation fears keep pushing global central bankers towards tighter monetary policies, which seemed to have underpinned the risk-aversion wave on Monday. Adding to the sour sentiment were worsening covid conditions in China and Russia’s ignorance of global ire over the invasion of Ukraine.

Looking forward, a light calendar emphasizes qualitative catalysts for intraday moves. However, major attention will be given to Wednesday’s US CPI ex Food & Energy for April, expected 6.0% YoY versus 6.5% prior. It should be observed that comments from US President Joe Biden and Treasury Secretary Janet Yellen will be important to watch as well.

Read: EUR/USD Forecast: Sentiment dominates markets ahead of inflation data