S&P500 Futures edge higher, yields lick their wounds amid pre-NFP positioning

• Market sentiment dwindles as traders await the key US employment report for May.
• S&P500 Futures print mild gains after snapping three-day downtrend the previous day.
• US 10-year, two-year Treasury bond yields dribble around respective weekly bottoms.
• Receding hawkish Fed bias highlights today’s NFP, last rounds of Federal Reserve talks before blackout also important to observe.

Risk appetite remains sluggish amid typical pre-NFP inaction during early Friday. Even so, the markets remain cautiously optimistic as hawkish Fed bets drop and the US policymakers are all set to pass the debt-ceiling deal. However, today’s US jobs report and the last round of the Fed talks before the pre-FOMC blackout becomes crucial and hence prods the traders, especially amid a light calendar elsewhere.

That said, S&P500 Futures print mild gains around 4,230 as it struggles to defend the previous day’s bullish move, the biggest in a week, amid a cautious mood. Also portraying the market’s anxiety is the US 10-year Treasury bond yield that prints the first daily gain in six as it bounces off a two-week low to 3.61% by the press time. On the same line, the two-year counterpart steadies near the weekly bottom surrounding 4.35% following a three-day downtrend.

It’s worth noting that the easing Fed fears, optimism about the US debt-limit agreement’s passage and stellar performance of the technology shares allowed Wall Street to remain positive the previous day.

While tracing the catalysts that triggered the risk-on mood, the market’s pricing of the Federal Reserve (Fed) rate hike, which dropped from 17 basis points (bps) in June on Wednesday to 7 bps on Thursday, gain major attention. On the same line were mixed US data and Fed talks.

With this, the US ADP Employment Change eased to 278K in May from 291K prior (revised) but crossed the 170K market forecasts. On the same line, the weekly Initial Jobless Claims rose past 230K prior to 232K, versus 235K expected. Further, US ISM Manufacturing PMI eased to 46.9 in May compared to 47.0 anticipated and 47.1 previous readings whereas S&P Global Manufacturing PMI softened to 48.4 from 48.5 prior. Additionally, the US Employment Cost Index eased while the consumer sentiment gauge improved but the details were unimpressive.

On the other hand, Federal Reserve Bank of St. Louis President James Bullard recently published an analysis wherein the Fed hawk accepts that the prospects for continued disinflation are good but not guaranteed, and continued vigilance is required.

As a result, today’s US employment report becomes more important and hence any surprise in the headline figures won’t be taken lightly. That said, Nonfarm Payrolls (NFP) to ease to 190K from 253K prior while the Unemployment Rate is also expected to increase to 3.5% from 3.4%. It should be noted that the US Senate’s passage of the debt-ceiling bill and the avoidance of the default woes, as well as the last round of the Fed talks ahead of the pre-Federal Open Market Committee (FOMC) blackout period for policymakers should also be eyed closely for clear directions.

Also read: Forex Today: The rally is finally here, and the Dollar knows it