S&P 500 Futures, US Treasury yields portray market’s consolidation ahead of Fed

• Markets turn dicey amid sluggish Asian session, allowing traders to pare recent moves.
• S&P 500 Futures lick its wounds near yearly low, stays around the lowest levels since early 2021.
• US 10-year Treasury bond yields dribble around the highest levels since 2011.
• Hawkish Fed bets, China-linked pessimism keep bears hopeful.

After a heavy selloff and bear’s dominance, traders took a sigh of relief during early Tuesday’s Asian session. In doing so, the traders avail the opportunity to brace for the Fed amid a quiet session.

While portraying the mood, the S&P 500 Futures bounces off a nearly 15-month low to regain the 3,772 level, snapping a four-day downtrend at the multi-month low. However, the US 10-year Treasury yields remain indecisive around 3.375%, following the run-up to the highest levels since early 2011.

Although a light calendar and the market’s pre-Fed anxiety allow the traders to portray the recent corrective pullbacks, escalating fears of the Fed’s hawkish action on Wednesday keep the sellers hopeful. On the same line are the recent covid woes from China and the Sino-American tussles over Taiwan.

Friday’s US inflation data propelled calls for faster/heavier rate increases and spread the market fears as hawkish central bank actions tease recession woes. The same pushed multiple analysts ranging from JP Morgan to Goldman Sachs to revise their Fed forecasts and include expectations of a 75 bp rate hike in June and July. “Our Fed forecast is being revised to include 75bps hikes in June and July,” said Goldman Sachs in its latest Fed forecasts per Reuters.

Elsewhere Beijing covid cases hit a three-week high, per Bloomberg, which in turn propels the virus woes and the resulted economic fears. On the other hand, Global Times raised expectations of easing US-China tension as it said, “Senior Chinese diplomat Yang Jiechi held talks with US National Security Advisor Sullivan in Luxembourg. The two agreed to reduce misunderstanding and miscalculation, and properly manage differences, saying it is necessary & beneficial to keep communication channels open.”

Looking forward, the US Producer Price Index (PPI) may entertain traders ahead of Wednesday’s heavy load of data and the Fed meeting. Should the Fed matches wide market expectations of a 75 bp rate hike, the odds of witnessing further pessimism can’t be ruled out.

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