US Treasury yields, S&P 500 Futures portray risk-on mood despite mixed concerns

• Market sentiment improves as China favors bulls during a quiet session, rejecting inflation, interest rate concerns.
• US Treasury yields snap two-day downtrend around 2.80%.
• S&P 500 Futures gain 1.0% as it extends recovery from yearly low.
• Preliminary readings of May’s PMIs, FOMC Minutes will be crucial, updates from China and Quad Summit should be eyed too.

Global markets remain optimistic during Monday’s Asian session as traders move past rate and inflation fears amid firmer clues from China. Also keeping buyers hopeful is the recently mixed US data and repeated Fedspeak.

While portraying the mood, the US 10-year Treasury yields rise by around three basis points (bps) to 2.81% whereas the S&P 500 Futures add over 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.

Be it repetitive calls of the Fed’s 50 bps rate hike or mixed data rejecting the need for heavily fuelled monetary policy tightening, not to forget China and Japan’s easy money, traders had all to justify the latest gains after multiple days of pessimism.

St Louis Fed President and outspoken hawkish FOMC member James Bullard was the latest Fed policymaker who reiterated support for the 50 bps move, joining Chairman Jerome Powell. The chatters have been boring of late and seem to have priced in, which in turn makes it a dull affair for the risk-takers who once cheered these faster rate hikes as the key challenge to markets. Also keeping the traders hopeful are the recently mixed US data, namely Retail Sales and Inflation, which raised doubts about the faster rate hikes.

It’s worth noting that a reduction in China’s covid numbers and the People’s Bank of China’s (PBOC) rate cut also underpins the risk-on mood in Asia. On the same line is the Bank of Japan’s (BOJ) concern for easy money, as well as the policymakers’ readiness to intervene if needed amid challenges to global growth emanating from the Russia-Ukraine crisis and the skyrocketing inflation.

Looking forward, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain traders. Also important will be the Minutes of the latest Federal Open Market Committee (FOMC), as well as signals from China, Russia and the Quad Summit in Tokyo.