S&P 500 Futures lick its wounds, US Treasury yields cling to monthly high ahead of US inflation

• Market sentiment remains sour as traders await US inflation data amid recession fears.
• S&P 500 Futures stabilize around fortnight low after falling the most in three weeks.
• US 10-year Treasury bond yields grind high around monthly top.

Markets portray a typical cautious mood ahead of the US inflation data on Friday. Even so, the risk-aversion wave remains in play amid fears that hawkish central bank moves could take a toll on the global economic conditions.

While portraying the mood, the S&P 500 Futures stays defensive at around 4,015, following the heaviest daily slump since late May, whereas the US 10-year Treasury bond yields take rounds to 3.05% figure after refreshing the monthly high the previous day. It’s worth noting that the Wall Street benchmarks dropped the most in a week while the US Dollar Index (DXY) jumped to the highest levels in three weeks, down 0.05% around 103.25 by the press time.

Escalating fears of faster/heavier rate hikes and the negative economic repercussions of the same seem to weigh on the market’s performance of late. The growing concerns over hot inflation and China’s covid conditions, not to forget the Russia-Ukraine tussles, are some of the extra catalysts that weigh on the sentiment.

The US Federal Reserve will hike its key interest rate by 50 basis points in June and July, with rising chances of a similar move in September, according to a Reuters poll of economists who see no pause in rate rises until next year. In addition to the firmer belief over the Fed’s aggression, the White House's expectations of a stronger inflation figure and downbeat economic forecast from the Organisation for Economic Co-operation and Development (OECD), as well as fears of recession conveyed by the World Bank (WB), also roils the most.

On Thursday, the European Central Bank (ECB) conveyed fears of inflation weighing on growth, via their forecasts. The bloc’s central bank also matched market consensus while announcing an end of Quantitative Easing from July 1 and 25 basis points (bps) of a rate hike on July 25, versus expectations of a 50 bps move. Further, the US Jobless Claims rose past 210K forecasts to 229K for the week ended on June 3 while US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, remain steady at around 2.75% in the last two days.

Looking forward, the market’s anxiety ahead of the US inflation data may exert downside pressure on the riskier assets like commodities, equities and Antipodeans. However, expectations of a steady US Consumer Price Index (CPI) for May, at 8.5% YoY, test the US dollar bulls who might have cheered the risk-aversion otherwise.

Also read: US Consumer Price Index May Preview: Fed policy is set but there is room for surprise