S&P 500 Futures, US Treasury yields retreat as markets await Fed’s Powell

• Risk appetite sours after two-day optimism amid fears of recession, pre-Powell anxiety.
• S&P 500 Futures drops half a percent while reversing the bounce off yearly low.
• US 10-year Treasury yields fade upside momentum near 11-year top.
• Fed Chair Powell may defend bears by fueling rate hike expectations.

Global markets fade the two-day optimism as traders await Fed Chair Jerome Powell’s key testimony amid fears of recession. Also keeping the risk-aversion active is the lack of major data/events during Wednesday’s Asian session.

While portraying the mood, the S&P 500 Futures drop 0.54% intraday to reverse the two-day rebound from the lowest levels since late 2020. It’s worth noting that the US Treasury yields also fail to cheer the risk-aversion as the benchmark 10-year Treasury yields dropped three basis points (bps) to 3.27% at the latest.

Fears of the Fed’s aggression, as well as concerning the US recession, act as the key catalysts to weigh on risk appetite. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that the recession fears aren’t inevitable. Further, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

On Tuesday, expectations of US President Joe Biden’s ability to tame energy prices joined the downbeat US data to offer another positive day during the full markets.

“Oil prices skidded in early trade on Wednesday amid a push by U.S. President Joe Biden to bring down soaring fuel costs, including pressure on major U.S. firms to help ease the pain for drivers during the country's peak summer demand,” said Reuters. It’s worth noting that Biden eyes a pause in the federal gas tax to ease the energy prices.

Elsewhere, US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

Looking forward, traders are likely to remain cautious ahead of Fed Chair Powell’s Testimony on the bi-annual Monetary Policy Report. Should Powell manage to justify the biggest rate hike since 1994, as well as portray Fed’s aggression in taming inflation, the risk-off mood may get a boost, which in turn could propel the US dollar and weigh on commodities.