S&P 500 Futures, yields return to the bear’s desk as recession fears weigh on sentiment

• Market sentiment fades the week-start cautious optimism amid fears of economic slowdown.
• Downbeat US data, Walmart’s profit warning joins pre-Fed anxiety to spoil the mood.
• S&P 500 Futures, US 10-year Treasury yields fade the previous day’s corrective pullback.
• US Consumer Confidence eyed ahead of Wednesday’s FOMC.

The risk profile fails to extend the week-start cautious optimism amid fears of economic slowdown. Also weighing on the sentiment could be the traders’ cautious mood ahead of Federal Open Market Committee (FOMC) meeting.

While portraying the mood, the S&P 500 Futures fail to trace Wall Street as it retreats to 3,955, down 0.40% intraday. On the same line is the US 10-year Treasury yields, down 3.5 basis points near 2.78%, reversing the previous day’s rebound to 2.81%.

It’s worth noting that the inversion between the 10-year and the 2-year US Treasury yields, as well as the recently high inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, highlight fears of recession.

That said, Monday’s Chicago Fed National Activity Index for June and Dallas Fed Manufacturing Index for July, preceded by Friday’s US S&P Global PMIs for July, also strengthened economic fears.

However, two US Treasury officials, namely Ben Harris, Treasury Assistant Secretary for Economic Policy and Neil Mehrotra, Deputy Assistant Secretary for Macroeconomics raised hopes for a firmer US Gross Domestic Product (GDP). The officials wrote, per Reuters, that gross domestic income (GDI), which measures aggregate income -- wages, business profits, rental and interest income -- continued to rise in the first quarter at a 1.8% annual pace, while GDP fell.

Earlier in the week, US Treasury Secretary Janet Yellen talked down fears of the US recession while saying, “A second quarter GDP contraction would not signal recession because of underlying job market strength, demand and other indicators of economic health.”

On a different page, Bloomberg’s analysis suggests the Chinese recession concerns weighing on the economic slowdown in the major economies also weigh on the market sentiment. “China’s economic slowdown is spilling over to major exporting nations in Europe and East Asia through falling demand for manufactured goods, causing Germany and South Korea to post rare deficits with the world’s second-largest economy,” said Bloomberg.

Elsewhere, Walmart’s slashing of profit forecasts and fears of less consumer spending going forward are additional catalysts that contribute to the risk-off mood amid a sluggish session. On the same line was the global rating giant Moody’s downgrade of European growth forecasts amid the energy crisis.

Looking forward, US CB Consumer Confidence for July, prior 98.7, appears the key for traders to watch. Also important will be the US New Home Sales for June, Richmond Fed Manufacturing Index for July and House Price Index data for May. Above all, the pre-Fed chatters and growth-related talks will be crucial to watch for clear directions.