S&P 500 Futures, Treasury bond yields retreat on US debt ceiling woes, full market’s return

• Market sentiment remains fragile as traders return from extended holiday.
• US Treasury Depart renews fears of debt ceiling expiration, policymakers rush for quick solutions.
• S&P 500 Futures print mild losses after reversing from three-month high, US Treasury bond yields pare week-start gains.
• Relief over First Republic Bank issue, hawkish Fed bets and recovery in US inflation expectations underpin US Dollar.

Risk profile remains sluggish during early Tuesday, following a cautiously optimistic start of the key week. While tracing the main catalysts, talks surrounding US default and hawkish Fed bets, as well as about China growth and the Sino-American tension, gain major attention as most traders return from a long weekend.

S&P 500 Futures print mild losses after retreating from a three-month high, down 0.10% intraday near 4,182 by the press time. On the same line, the US 10-year and two-year Treasury bond yields retreat from a one-week high to 3.55% and 4.13% at the latest.

US Treasury Department renewed fears of US default by pulling forward the date of running out of funds to match obligations if the current debt ceiling isn’t altered, to June 01 from previously signaled July. Following that, Reuters came out with the news suggesting the US Senate Majority Leader Chuck Schumer’s push for an expedited process to consider a clean two-year suspension of the federal debt ceiling.

Further, chatters of US President Joe Biden’s call to four top US diplomats and arranging a meeting on May 09 also made rounds while US House of Representatives Speaker Kevin McCarthy mentioned that there is a bill sitting in the Senate as we speak that would put the risk of default to rest.

Elsewhere, a relief from the US First Republic Bank issue allowed traders to take a breather as the US regulators seized assets of the First Republic Bank and sold them to a new buyer, namely JP Morgan. “JPMorgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) as part of the deal to take control of most of the San Francisco-based bank's assets and get access to First Republic's coveted wealthy client base,” said Reuters.

Also on the positive side are the latest statements from China Beige Book (CBB) suggesting that new data offer the first evidence of a truly robust 2023 recovery in the dragon nation, per analysts from CBB.

On the other hand, Axios came out with headlines suggesting the US allies’ preparations for the US-China war over Taiwan. Additionally, Friday’s upbeat US inflation clues via Core PCE Price Index join Monday’s mostly firmer US PMI data to underpin hawkish bias about the Federal Reserve (Fed) and weigh on the sentiment. On the same line are the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data.

Moving ahead, US Factory Orders for March, expected to rise by 0.8% MoM versus -0.7% prior, can offer immediate directions to traders. However, major attention will be given to Wednesday’s US Federal Reserve (Fed) monetary policy announcements and Friday’s jobs report for April for a clear guide.

Also read: Forex Today: US Dollar strengthens ahead of Fed