S&P500 Futures retreat towards 4,400, yields grind higher as central banks fuel recession woes

• Market sentiment roils as hawkish central bank moves propel fears of economic slowdown.
• S&P500 Futures fade the previous day’s corrective bounce off weekly low.
• Yields grind higher as Fed Chair Powell defends hawkish bias, US data appears less troublesome.
• Preliminary PMIs for June, market’s reaction to central bank moves eyed for clear directions.

The risk profile roils on early Friday amid market players’ fear of witnessing recession after the latest slew of hawkish central bank actions. Adding strength to the risk-off mood could be the higher inflation concerns and the US-China tension. However, a holiday in Beijing joins a light calendar in Asia, apart from Japan’s inflation, to restrict the trading momentum ahead of the key preliminary activity data for June.

While portraying the mood, the S&P500 Futures print mild losses around 4,415 after the previous day’s mixed closing of Wall Street and upbeat US Treasury bond yields. That said, the US 10-year and two-year Treasury bond yields rose the most in a week after the central bank play before recently easing to around 3.78% and 4.79% in that order by the press time.

It should be noted that the US Dollar Index (DXY) picks up bids to extend the previous day’s rebound from the six-week low to around 102.55 by the press time. The same exert downside pressure on the prices of Gold and Oil, respectively around $1,912 and $69.00 by the press time.

A slew of central banks announced hawkish moves the previous day and bolstered concerns of “higher for longer” rates. Among them, the Bank of England (BoE), informally known as the “Old Lady”, surprised markets by lifting benchmark rates by 50 basis points (bps) to 5% versus major expectations favoring a 0.25% rate hike. Further, the Swiss National Bank (SNB) matched market forecasts while announcing 25 basis points increase in its benchmark interest rate, to 1.75%. This was the fifth consecutive rate lift from the Swiss central bank. Additionally, the Central Bank of the Republic of Türkiye (CBRT) hiked rates for the first time since August 2021 whereas the Norges Central Bank announced rate increases.

However, most of the respective currencies remained on the back foot amid fears that the broad rate hikes have an economic toll, especially during a time of higher inflation and geopolitical tension.

Apart from the central bank moves, hawkish testimony from Fed Chair Powell also weighs on the risk profile. Fed Chairman Jerome Powell repeated most of his previous day’s remarks during his testimony 2.0, this time in front of the Senate Housing Committee. Though his statements like, “(It) will be appropriate to raise rates again this year, perhaps two more times,” allowed the US Dollar to refresh the intraday high while eyeing to reverse Wednesday’s losses.

Though, downbeat comments from Thomas Barkin, President of the Federal Reserve Bank of Richmond, as well as US Treasury Secretary Jannet Yellen, prod the US Dollar Index bulls earlier in the day. That said, Fed’s Barkin showed readiness to vote for rate cuts on conviction of a slowdown in inflation while US Treasury Secretary Yellen flags recession fears as Fed tightens policy.

Looking ahead, the first readings of June’s activity numbers for the UK, Germany, Eurozone and the US will be crucial to watch for clear directions. It’s worth noting, however, that the downbeat mood can continue to weigh on the riskier assets.

Also read: Forex Today: Dollar stabilizes, commodities slide, and central banks hike