S&P 500 Futures retreat as yields rebound during full markets

• Global markets struggle to extend previous risk-on mood as traders consolidate recent moves.
• S&P 500 Futures ease from three-week top, US 10-year Treasury yields poke one-week high.
• Fed’s Waller, EU sanctions and month-end adjustments seem to test optimists.

Market optimism fades during early Tuesday as bond buyers take a breather, underpinning a pullback in riskier assets like equities and commodities. Also challenging the previous risk-on mood were headlines from Europe, as well as month-end consolidation.

While portraying the mood, S&P 500 Futures take a U-turn from a three-week top, flashed the previous day, to retest the 4,155 level. Further, the US 10-year Treasury yields rise 8.5 basis points (bps) to 2.835% by the press time.

It’s worth noting that the firmer US bond yields underpin the US Dollar Index's rebound from the monthly low, up 0.33% intraday near 101.70.

That said, the US Memorial Day holiday on Monday restricted the market moves but comments from Fed Board of Governors member Christopher Waller seem to have renewed the US dollar strength. The policymaker said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters. 

Also likely to have probed the earlier risk-on mood are the Eurogroup sanctions on Russia and comments from Ukrainian President Volodymyr Zelensky. Reuters mentioned that Ukrainian President Zelenskiy said, shortly before the EU sanctions that the situation remained ‘extremely difficult’ in the Donbas region, where Russia has focus of its military effort after failing to capture Ukraine's capital, Kyiv, in March.

On the contrary, China’s gradual unlock and receding bets on the Fed’s aggressive rate hikes, especially after the recently downbeat US inflation and growth numbers, seem to keep the market players hopeful ahead of Friday’s key US Nonfarm Payrolls (NFP) and ISM PMIs for May.

For intraday traders, Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for May will be important to watch.