S&P 500 Futures retreat as Treasury bond yields pause two-day downtrend, Fed Chair Powell eyed

• Market sentiment remains sluggish as recently hawkish Fedspeak, US inflation expectations probe Fed doves.
• Covid fears from China outweigh optimism concerning border reopening.
• Fed Chair Powell’s panel discussion will be eyed for predicting rate hike trajectory, risk moves ahead of US inflation.

The week-start risk-on mood fades during early Tuesday as market players weigh recently hawkish Fed talks amid a sluggish session. Also likely to have probed the optimists are the easing optimism surrounding China, as well as the cautious mood ahead of a speech from Fed Chairman Jerome Powell.

While portraying the mood, the S&P 500 Futures remain lackluster around 3,915, down 0.05% intraday, whereas the US 10-year Treasury yields seesaw around a three-week low marked the previous day, close to 3.52% by the press time.

It’s worth noting that the Atlanta Federal Reserve bank president Raphael Bostic said on Monday that it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, resolute to bring inflation down. Additionally, the Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation declined to 5% in December from 5.2% prior. Alternatively, the three-year ahead expected inflation remained unchanged at 3% and the five-year ahead expected inflation edged higher to 2.4% from 2.3%.

Also likely to have probed the risk takers could be the recent headlines from Bloomberg suggesting fears of high COVID-19 figures from rural China as the holiday season in the Asian major looms. The news cites death of facilities and drugs, as well as experts’ fears of a spike in Covid cases in January, to challenge the optimism surrounding China.

Previously, China’s reopening of the international borders after a three-year halt joined Beijing’s readiness for stimulus and early signals of a shopping spree ahead of the Chinese New Year holiday season to underpin the firmer sentiment. On the same, Friday’s US economics, mainly concerning the wage growth and ISM Services PMI for December, raised speculations that the Federal Reserve (Fed) finally has an upper hand in taming inflation, suggesting a pause to aggressive rate hikes, which in turn favored the risk-on mood.

Looking ahead, Fed Chairman Jerome Powell’s speech, as well as Thursday’s US Consumer Price Index (CPI) will be crucial for near-term market directions.

Also read: Forex Today: Optimism hits the US Dollar