S&P500 Futures dribble after confirming bull market, Treasury yields grind higher as Fed hawks retreat

• Market sentiment remains sluggish after witnessing an optimistic day.
• S&P500 Futures print mild losses but stays on the front foot near yearly high, confirmed bull markets the previous day.
• Treasury bond yields hesitate extending the previous day’s pullback.
• Softer China inflation, broad recession fears prod sentiment.

The risk profile remains dicey during early Friday as market players take a breather after witnessing a volatile day. The same allows traders to pare the previous day’s gains while reassessing concerns about a global economic slowdown.

While portraying the mood, the S&P500 Futures print mild losses around the highest levels since August 2022, marked the previous day. That said, the benchmark Wall Street index confirmed bull markets on Thursday, by rising around 20.0% from the lows marked in October.

On the other hand, US 10-year and two-year Treasury bond yields remain sidelined near 3.73% and 4.52% respectively. It’s worth noting that the benchmark US 10-year bond yields reversed from the highest levels in a fortnight the previous day whereas the two-year counterpart snapped a two-day winning streak.

It’s worth noting that the market’s fears of recession take clues from the latest easing in China inflation and softer economics from Australia, Europe and the US. Also underpinning the pessimism are the hawkish central banks which remain ready to fuel the benchmark rates. It should be observed, however, that the receding hawkish bets on the US Federal Reserve (Fed) seemed to have favored the equities and bond buyers the previous day.

That said, US Initial Jobless Claims rose to 261K in the week ended on June 02 versus 235K expected and 233K prior (revised). With this, the four-week average rose to 237.25K from 229.75K previous readings. Further, the Continuing Jobless Claims dropped to 1.757M in the week ended on May 26 from 1.794M prior (revised), compared to 1.8M market forecasts. Earlier in the week, the US ISM Services PMI, S&P Global PMIs and Factory Orders also printed downbeat outcomes.

Elsewhere, the final version of the Eurozone Gross Domestic Product (GDP) for the first quarter (Q1) of 2023 marked a downward revision to the initial forecasts of 0.1% to -0.1% QoQ, versus 0.0% expected. Further, the yearly GDP figures also eased to 1.0% from 1.3% previous estimations and 1.2% market consensus. Additionally, the region’s final Employment Change matches initial forecasts and market expectations of 0.6% on QoQ during the said period but eased to 1.6% on YoY compared to 1.7% previous predictions.

Earlier in the day, China’s headline inflation gauges for May, namely the Consumer Price Index (CPI) and Producer Price Index (PPI), flashed mixed signals as the CPI drops on MoM but improves on YoY whereas the PPI marks a slump during the stated month.

Following the downbeat China data and the Reserve Bank of Australia’s (RBA) hawkish surprise, the Commonwealth Bank of Australia (CBA) put 50% probability of witnessing a recession in 2023.

Looking ahead, a light calendar, apart from Canada employment data for May, can restrict intraday moves. Also likely to challenge the momentum traders could be the cautious mood ahead of the next weeks’ key monetary policy meetings, namely from the Fed and the ECB.

Also read: Forex Today: Dollar breaks lower and remains under pressure