S&P 500 Futures portray market’s inflation, rate hike fears even as yields dribble


  • Risk appetite remains downbeat as traders fear higher rates for longer.
  • Geopolitical concerns surrounding China, Russia also weigh on sentiment.
  • S&P 500 Futures snap three-day winning streak, yields grind near monthly high.
  • Second-tier US data eyed for immediate directions, PMIs, Fed talks are the key.

Market sentiment remains fragile as fears of interest rate hikes, as well as geopolitical tension, regain attention amid higher inflation clues. Adding strength to the risk-off mood could be the hawkish central bank comments and the fears of aggravated tension between the West and China.

While portraying the sentiment, S&P 500 Futures print the first daily loss, so far, in four around 4,168, down 0.25% intraday by the press time. However, the US 10-year and two-year Treasury bond yields grind near 3.60% and 4.25% respectively after refreshing the monthly top the previous day.

A notable jump in the inflation numbers at the key global economies joined the hawkish comments from the top-tier central bank officials renewed fears of higher rates and recession. Adding strength to the risk aversion could be the war fears emanating from China and Russia.

In the last few days, the UK, Eurozone and the US have all been flashing upbeat signals for inflation while the central bank officials from the Bank of England (BoE), European Central Bank (ECB) and the Federal Reserve (Fed) are all favoring higher rates for longer. The same raises the fears of economic slowdown especially when the ex-inflation numbers haven’t been too impressive and the Russia-Ukraine war takes a toll on the global economy.

Among the latest policy hawks from the Fed is New York Fed President John Williams who marked support for a 0.25% interest rate hike in May while saying, “Inflation is still too high, and we will use our monetary policy tools to restore price stability.” Just before him was Chicago Federal Reserve Bank President Austan Goolsbee who highlighted credit market strength as one of the key catalysts to watch ahead of the next Fed monetary policy meeting.

Previously, St. Louis Federal Reserve President James Bullard, Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael W. Bostic were the Fed speakers who rekindled the “higher for longer” scenario for rates and favored the US Dollar, as well as yields.

With this in mind, the market players place higher bets on the central bank’s 0.25% rate hike in May remain high, as well as reduce the probability of witnessing a rate cut in 2023.

On a different page, the UK warned that Russian hackers targeting Western critical infrastructure while the US House China Committee discussed the Taiwan invasion scenario. Furthermore, the likely drag on the US debt ceiling decision is due to US President Joe Biden’s hesitance in lifting debt limits. Additionally, Bloomberg released news suggesting China’s role in the Russia-Ukraine war, which in turn adds strength to the risk-off mood.

Given the recent emphasis on the qualitative headlines as the key risk barometer, today’s second-tier US data may not be as important as they seem unless surprising traders. That said, the US Weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey and Existing Home Sales are on the calendar to watch for fresh impulse

Also read: Forex Today: Dollar rises modestly amid range-bound markets