S&P500 Futures pare recent losses, yields grind higher as US debt limit talks dwindle

• Market sentiment remains dicey as US policymakers struggle to deliver debt limit extension deal.
• Top-tier rating agencies convey challenges to US rating status on default drama.
• S&P500 Futures portray corrective bounce from fortnight low, yields grind near the highest levels since March.
• A slew of US data on the table but risk catalysts are the key for clear directions.

Market sentiment stays sluggish, mostly downbeat, despite the latest improvement in the S&P500 Futures as fears of the US default fuel the Treasury bond yields during early Thursday. Also challenging the risk profile are the mixed comments from the Federal Reserve (Fed) officials and clumsy details of the FOMC Minutes.

That said, the S&P500 Futures snap a two-day downtrend by portraying a corrective bounce from the two-week low to 4,138 by the press time, up 0.35% intraday at the latest. On the other hand, the US 10-year and two-year Treasury bond yields remain firmer at the highest levels since mid-March, close to 3.75% and 4.40% as we write.

It should be noted that the US Dollar Index (DXY) rises to a fresh high in seven weeks, to 104.00, whereas prices of the Gold and WTI crude oil remain depressed near $1,975 and $74.00 respectively by the press time.

Given the US policymaker’s inability to deliver a debt ceiling extension deal and the looming long weekend for the House Representatives, the fears of US default push global rating agencies like Fitch and Moody’s to turn cautious about the US credit rating status. Late on Wednesday, Moody’s warned about the US outlook change while Fitch put US’ AAA on Rating Watch Negative status.

Elsewhere, Atlanta Fed President Raphael Bostic said, “‘We’re right at the beginning of the hard part’ of taming inflation.” On the same line, Federal Reserve Governor Christopher Waller mentioned that he doesn’t support stopping rate hikes unless getting clear evidence that inflation is moving down toward the 2% objective. However, the Minutes of the latest Federal Open Market Committee (FOMC) Meeting suggested that the policymakers aren’t on the same table as some suggest it is appropriate to hike the rates while others advocate for a policy pivot.

It should be noted that the lack of major data/events in Asia and the cautious mood ahead of a slew of mid-tier data from the US and Germany keeps the traders on their toes despite the latest rebound in the US stock futures. That said, the second readings of the US and German Q1 GDP will join the US weekly Jobless Claims, the Chicago Fed National Activity Index and Pending Home Sales to decorate the economic calendar. However, major attention will be given to the US debt ceiling talks.

Also read: Forex Today: Dollar strengthens further, Kiwi tumbles