S&P 500 Futures, US Treasury yields portray cautious mood ahead of Fed’s Powell, PMIs

• Market sentiment fades the week-start optimism amid challenges from China, Fed.
• S&P 500 Futures retreat from 3,950, US 10-year Treasury yields dribble around 2.85%.
• Hawkish Fedspeak, USTR’s comments and anxiety ahead of PMIs, Fed's Powell weigh on the mood.

Global markets fail to conserve the week-start optimism as headlines surrounding China and the Fed weigh on sentiment during early Tuesday. Also challenging the positive mood is the market’s anxiety ahead of the key data/events.

To portray the mood, S&P 500 Futures drop 0.70% to 3,940 whereas the US 10-year Treasury yields fade from the previous day’s rebound from the monthly low of around 2.86%.

Contrary to the neutral comments from the Fed policymakers, Tuesday’s hawkish Fedspeak seems to have weighed on the market sentiment. The key among them was San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George.

“I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

On a different page, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

It should be observed that major banks’ downgrade of the US and Chinese economic forecasts also keep the risk-aversion on the table.

Additionally, the cautious mood ahead of the Quad Summit in Tokyo and the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, drown the risk appetite.

That said, mixed prints of the PMIs and Powell’s repetitive comments may recall the optimists but the geopolitical and trade catalysts are less likely to let that happen. Hence, strong prints of the US data and hawkish comments from Fed’s Powell will be eyed for further risk-off play.

Also read: Fed’s inflation fight is all bark, no bite