S&P500 Futures, yields portray cautious optimism despite US default fears, anxiety ahead of inflation

• Market sentiment remains divided as debt-ceiling talks fails ahead of the US inflation report.
• S&P500 Futures print mild gains, US 10-year Treasury bond yields snap four-day winning streak.
• Updates about US default, banking fallouts can entertain traders ahead of US CPI for April.

Risk profile stays sluggish during early Wednesday as market players take different clues from the latest White House updates, as well as the US banking news. Adding strength to the traders’ indecision is the cautious mood ahead of the key US inflation data, namely the Consumer Price Index (CPI) for April.

While portraying the mood, the S&P 500 Futures print mild losses for the second consecutive day while the US 10-year and two-year Treasury bond yields print the first daily loss in five around 3.50% and 4.02% at the latest. It should be noted that the US Dollar Index (DXY) also retreats to 101.50 after rising in the last two consecutive days whereas the Gold price fades upside momentum around $2,030 by the press time.

Among the key risk catalysts, failed debt ceiling talks in the White House recently prod the optimists as US Senate Majority Leader Chuck Schumer conveyed the absence of progress in the key debt-ceiling negotiations.

However, US President Joe Biden called the meeting “productive” and reported that House Speaker Kevin McCarthy said during the meeting that the US would not default on its debt, per Reuters. The news also quotes US House Speaker McCarthy saying that the two sides agreed for their staff to get together this week, and for the principals to meet again on Friday to continue talking. With this, traders remain hopeful of avoiding the US default. Even so, the global rating giant Moody’s recently said, “What once seemed unimaginable now seems a real threat.”

On a different page, International Monetary Fund’s (IMF) Chief Economist Pierre-Olivier Gourinchas cited banking fears on Tuesday. The same follows the Fed's quarterly survey of bank loan officers, released on Monday, which highlights the negative impact of higher rates on credit conditions.

Talking about the US data, the US NFIB Small Business Optimism index dropped to the lowest level since 2013, to 89 in April. Following the data, Federal Reserve Bank of New York President John Williams said, per Reuters, "Fed has not said it's done raising rates."

Hence, the market remains on a dicey floor and portrays typical pre-data anxiety. The lackluster moves get support from the mixed feelings about the US default fears and banking fallouts amid a light calendar in Asia.

Moving on, the US CPI for April will be crucial as forecasts suggest an easing in the core inflation data while mostly unchanged CPI YoY and an improvement in the monthly figure. Should the data suggest escalating inflation pressure in the world’s biggest economy, the recently hawkish Fed bets may gain momentum and can allow the US Dollar to pare intraday losses, the first in three.

Also read: Forex Today: Dollar rises timidly ahead of US CPI