S&P500 Futures hesitates tracing Wall Street at yearly top, yields drop as markets await US inflation

• Market sentiment portrays typical anxiety ahead of top-tier data/events.
• S&P500 Futures dribble around the highest levels since late April 2022, yields extend week-start pullback from monthly top.
• PBoC rate cut, US-China tension challenge optimism as US CPI looms.
• Dovish Fed bets keep risk catalysts firmer amid dicey Asian session.

The risk profile remains cautiously optimistic during early Tuesday as traders keep their eyes on the US inflation data. That said, hopes of the Federal Reserve’s (Fed) hawkish halt join the recent rate cut from the People’s Bank of China (PBoC) to underpin firmer sentiment. However, fears surrounding China’s economic growth, the Sino-American tension and the cautious mood ahead of the top-tier catalysts prod the optimists.

While portraying the mood, the S&P500 Futures seesaw around 4,345 as it struggles to cross the highest level since April 2022, marked the previous day. That said, the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

PBoC cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

Elsewhere, the market’s fears of more tension between the US and China escalate as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Above all, fears of witinessing a hawkish halt from the US Federal Reserve (Fed) and cautious mood before today’s US Consumer Price Index (CPI) figures for May prod the market sentiment. Recently, Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said in an interview that he would support a "hawkish pause" at this week's meeting. Previously, ex-Fed vice chair Richard Clarida came out with comments that it may be more difficult to get inflation near 2% than in the past 15 years. Further, “Expect a hawkish skip this week,” Former President of Boston Federal Reserve Bank, Eric Rosengren, tweeted early Monday.

Amid these plays, US Dollar Index remains pressured and the commodities, as well as Antipodeans, edge higher. That said, stocks in the Asia-Pacific zone also remain firmer but gains are mild at the latest.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios