US T-bond yields retreat from six-week high, S&P 500 Futures ease amid cautious sentiment

• US Treasury yields pause two-day advances, stock futures track Wall Street benchmark.
• Market players turn cautious ahead of key US data/events.
• Mixed updates over Omicron, easing US inflation expectations also challenge optimists.
• US ADP Employment Change, FOMC Minutes eyed for fresh impulse.

After a solid start of 2022, the market’s risk appetite dwindles during early Wednesday. As a result, the key risk barometers, namely the US Treasury yields and stock futures, print mild losses at the latest.

That said, the US 10-year Treasury bond coupon seesaws around the six-week high, down one basis point (bp) near 1.65% at the latest. Also, the S& 500 Futures drop 0.20% intraday.

While hopes of stimulus and receding fears from the South African covid variant could be cited as the key catalysts for the previous optimism, mixed clues concerning the Fed’s next action and Omicron joins cautious mood ahead of the key US data/events seem to weigh on the sentiment of late.

It’s worth noting that Wall Street benchmarks closed mixed and the US 10-year Treasury yields refreshed six-week top, before recently easing, during the previous day.

Among the main positives could be comments from World Health Organization (WHO) official that again tried to placate fears over the South African covid variant, Omicron. "We are seeing more and more studies pointing out that Omicron is infecting the upper part of the body. Unlike other ones, the lungs who would be causing severe pneumonia," WHO Incident Manager Abdi Mahamud told Geneva-based journalists per Reuters.

Furthermore, a steady increase in global covid vaccinations and hopes of further stimulus from the US and China could also be cited for the market’s previously upbeat sentiment.

Additionally, mixed data from the US and a pause in the inflation expectations joined comments from the Fed to also probe the bulls.

The ISM Manufacturing PMI dropped to the lowest in 11 months in December, 58.7 versus 60.0 forecast and 61.1 prior, whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M. Further, the US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) eased from a six-week high to 2.57% at the latest, which in turn tamed Fed rate-hike chatters. Moreover, Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari, who said on Monday that he now sees two rate hikes in 2022, versus the money market bets of three rate lifts.

Moving on, global financial markets are likely to remain sidelined amid mixed clues and pre-data caution. That said, the anticipated easing in the ADP may help the Aussie pair to keep the latest rebound, the hawkish tone of the policymakers in the Federal Open Market Committee (FOMC) Meeting Minutes. will be enough to challenge the market’s risk appetite.

Read: US ADP December Preview: Suddenly its inflation, not jobs