Yields seesaw near monthly low, S&P 500 Futures rise past 3,900 amid sluggish session

• Market sentiment dwindles as softer yields, China news fail to favor risk assets amid lack of major data/events.
• US 10-year Treasury yields dribble around three-week low, S&P 500 Futures extend the previous day’s bounce off yearly bottom.
• Hopes of the faster Fed rate hikes during year-end underpin the USD rebound.
• PBOC interest rate decision, risk catalysts eyed for fresh impulse amid a light calendar.

Global traders struggle for clear directions during Friday’s Asian session as a lack of major catalysts battle recently positive covid news from China. Also challenging the moves are downbeat US Treasury yields and softer US data versus the increased hopes of faster rate hikes by the year-end, irrespective of the latest uninteresting Fedspeak.

While portraying the mood, the US 10-year Treasury yields remain pressured at the three-week low, down 0.5 basis points (bps) near 2.85%, whereas the S&P 500 Futures rise 0.50% intraday to 3,915 at the latest. That said, the US Dollar Index (DXY) consolidates the biggest daily fall in 10 weeks around 103.00, up 0.06% by the press time.

Starting with the positives, China reports a sustained fall in the covid numbers and the virus-led deaths while justifying the recently eased activity restrictions in Shanghai, as well as in Mainland. “China reports 193 new confirmed coronavirus cases in the mainland on May 19 vs 212 a day earlier,” said Reuters. The news also mentioned no new coronavirus deaths on May 19 versus 1 a day earlier.

Elsewhere, softer US data and repetitive comments over a 50 bps rate hike from the Fed policymakers seemed to have underpinned the latest consolidation in the market’s mood. That said, Kansas City Fed President and FOMC member Ester George said she is comfortable now doing half-point rate increases. However, Federal Reserve Bank of Minneapolis President Neel Kashkari mentioned the need for the Fed to be aggressive.

Talking about the US data, the latest print of the Federal Reserve Bank of Philadelphia’s Manufacturing Activity Index for May dropped to the lowest reading since May 2020, to 2.6 from 17.6 in April. Further, the Initial Jobless Claims in the week ending on 14 May rose to 218,000, the highest level since January, from 197,000 one week ago and expected a rise of 200,000.

On the contrary, International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura recently followed Managing Director Kristalina Georgieva’s signal for tighter monetary policy ahead. IMF’s Okamura said, “Asian economies must be mindful of spillover risks as a decade of unconventional easing policies by major central banks is withdrawn faster than expected.”

It’s worth noting that the recent Reuters poll also highlights fears of higher rates by the year-end. “The US Federal Reserve will lift interest rates higher by the end of this year than anticipated just a month ago, keeping alive already-significant risks of a recession,” said the latest Reuters poll of economists.

To sum up, traders seem confused amid mixed signals and a lack of major data/events, which in turn highlights the People’s Bank of China’s (PBOC) Interest Rate Decision and the risk catalysts as the key factors to watch for fresh impulse.

Also read: S&P 500 reclaims 3900 but remains negative, and the Dow Jones drops more than 150 points on risk aversion