US T-bond yields fade week-start rebound, S&P 500 Futures remain indecisive

• Market sentiment remains sour amid geopolitical, Fed-linked fears.
• US 10-year Treasury yields refresh intraday low, stay around 2.5 year high.
• S&P 500 Futures struggle for clear direction but part ways from Wall Street’s losses.
• US data, Russia-Ukraine headlines and Fedspeak are the key for near-term market direction.

Risk appetite stays weak during Tuesday’s Asian session as traders juggle with headlines concerning Russia-Ukraine tussles and hawkish Fedspeak. Also challenging the market sentiment is the latest news showing fresh Sino-American tensions.

While portraying the mood, the US Treasury yields consolidate the previous day’s recovery moves with the fresh drop to 1.979%, down 1.7 basis points (bps), whereas the S&P 500 Futures print mild gains by the press time. On Monday, the bond coupons regained upside momentum after stepping back from a 2.5-year high on Friday whereas the Wall Street benchmark closed in the red, despite mildly positive week-start performance.

The Western leaders initially highlighted fears of Russia’s attack on Ukraine during this week before market chatters of February 16 to be the D-day. On the positive side were headlines covering Russian Foreign Minister Sergey Lavrov who told President Putin that the US had put forward concrete proposals on reducing military risks and that he could see a way to move forward with talks. Russia’s Lavrov also mentioned that EU and NATO responses have not been satisfactory, which in turn highlights risk-off mood despite easing fears.

On the other hand, comments from St. Louis Fed President James Bullard also weigh on the risk appetite. Fed’s Bullard repeated his call for 100 basis points (bps) in interest rate hikes by July 1 by citing the last four inflation reports which show broadening inflationary pressures.

It should be noted that five-week high US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, join firmer probabilities of 0.50% rate hike by the Fed in March to also weigh on the market sentiment.

Elsewhere, Bloomberg came out with the news suggesting an end to the US-China trade negotiations due to Beijing’s failures to meet the pledges. “The US is continuing conversations with China despite Beijing’s failures to abide by a trade agreement reached during the Trump administration, but that process could soon come to an end, according to people familiar with the matter,” said Bloomberg.

The risk-off mood fails to help DXY but gold and oil prices remain firmer. That said, second-tier from the US will also direct intraday market moves, other than the risk catalysts mentioned above. The US Producer Price Index (PPI) for January, expected 9.1% YoY versus 9.7% prior, whereas the Empire State Manufacturing Index for February, having the market consensus of 12 versus -0.7% previous readouts.

Read: Can we expect inflation to have peaked this week?