S&P 500 Futures, yields remain pressured as recession fears accelerate ahead of ECB

• Market sentiment dwindles amid economic fears, pre-ECB anxiety.
• S&P 500 Futures retreat from monthly high, US 10-year Treasury yields extend previous day’s pullback.
• Firmer inflation also weigh on risk appetite amid a light calendar.
• ECB is expected to announce 0.25% rate hike but fears of economic slowdown in the bloc keep optimists away.

Global markets remain cautious during Thursday’s Asian session, extending the previous day’s turbulence forward, as traders await the key monetary policy announcements from the European Central Bank (ECB). Also exerting downside pressure on the risk appetite are the fears of economic slowdown and central banks’ aggression, due to firmer inflation.

While portraying the mood, S&P 500 Futures drop 0.15% intraday while reversing from a six-week high to 3,956 at the latest. Further, the US 10-year Treasury yields also stretch Wednesday’s pullback from the weekly top to 3.02%, down 1.5 basis points (bps) by the press time.

It’s worth noting that Wall Street benchmarks managed to post another positive day, despite retreating before the close on negative news concerning the US jobs from top-tier firms including Google and Ford.

Recently, the Asian Development Bank (ADB) slashed its growth forecasts for developing Asia for this year and next, per Reuters. The news cites the economic fallout from Russia's war in Ukraine and aggressive tightening by global central banks to tame inflation as the key catalysts. “Downgrading its 2022 forecast for the third time, the ADB said it now expects the bloc's combined economy, which includes China and India, to expand 4.6%, slower than its 5.2% projection in April,” mentions Reuters.

On Wednesday, lowered its growth forecasts for Germany to 1.2% for 2002 and 0.8% for 2023. In its previous forecast, the IMF was expecting the German economy to grow by 2% in both years.

Behind the IMF forecasts are the recent fears surrounding Russia’s gas supplies to the bloc. European Commission President Ursula von der Leyen said on Wednesday that it was a likely scenario that there could be a full cut-off of Russian gas, as reported by Reuters. On the other hand, Russian President Vladimir Putin mentioned that they are yet to see in which condition the equipment for Nord Stream 1 will be after returning from maintenance, per Reuters. 

Elsewhere, the record inflation from the UK, a firmer CPI from Canada and Italy’s political crisis were also weighing on the market sentiment. Additionally, covid fears from China and a blackout period for the Fed appear a burden on the market players. It should be noted that the latest Reuters poll hints at 0.75% Fed rate hike and 40% chance of the US recession.

Given the return of recession fears, as well as firmer inflation and hopes of central banks’ aggression, risk appetite is likely to remain softer, which in turn could help the safe-haven assets like the US dollar. However, today’s ECB meeting will be crucial as the bloc’s central bank faces multiple challenges as it tries to defend the Euro.

Also read: Forex Today: Sentiment sours amid recession fears and ahead of the ECB