S&P 500 Futures, yield curve portray recession fears, US inflation in the spotlight

  • S&P 500 Futures extend the previous day’s pullback from two-week high.
  • Widening gap of US 10-year, 2-year Treasury yields curve hints at recession fears.
  • Jump in the US inflation expectations, hawkish Fedspeak also strengthen risk-aversion wave.

Market sentiment remains sour during Tuesday’s Asian session amid prevalent economic fears. While portraying the mood, the S&P 500 Futures drop 0.40% to stretch the previous day’s losses towards $3,840 whereas the US Treasury yields also remain pressured at the latest.

That said, the difference between the US 10-year Treasury yields and its counterpart for the 2-year validity also portrays the risk-off mood, by marking the higher rate of 3.03% for the near-term bond while the lower yield of 2.96% for the longer-term bonds.

A record high in the one-year US inflation expectations and comments from the US policymakers suggesting more pain ahead escalated the fears of economic slowdown, which in turn propelled the market’s rush towards risk safety. Also adding to the risk-off mood, as well as to the broad US dollar strength, were Friday’s upbeat US employment data and geopolitical/trade fears.

That said, one-year US inflation expectations jumped to the record high of 6.8% in June, versus 6.6% prior, as per the NY Fed’s survey data released the previous day. It’s worth noting the latest US jobs report mentioned the US Nonfarm Payrolls (NFP) rose by 372K for June, versus expected 268K and downward revised 384K prior while the Unemployment Rate remained unchanged at 3.6%.

On the same line, Shanghai’s first coronavirus Omicron sub-variant BA-5 case escalated virus woes after the dragon nation failed to sustain the unlock activities. Moreover, strong inflation data from the Asian major and doubts over Beijing’s GDP goal, as well as on the stimulus’ ability to renew optimism, also weigh on the market’s sentiment.

Moving on, fears of the economic slowdown can keep weighing on the market’s risk appetite ahead of Wednesday’s US Consumer Price Index for June, expected 8.8% versus 8.6% prior.

It’s worth mentioning that the risk-off mood underpins the US dollar strength and weighs on prices of commodities, as well as Antipodeans.

Also read: US Dollar Index dribbles around multi-year above 108.00 ahead of US inflation