S&P500 Futures, yields retreat amid US debt ceiling jitters, anxiety ahead of Fed Minutes

• Market sentiment fades the previous day’s cautious optimism as US debt ceiling woes prevail.
• S&P500 Futures defend previous day’s U-turn from nine-month high.
• US 10-year Treasury bond yields snap six-day uptrend, reverses from the highest levels in 10 weeks.
• Risk catalysts are the key amid light calendar for today, Biden-McCarthy talks are crucial.

Global traders remain cautious during early Monday as the US policymakers failed to offer any solutions to the looming default woes even as President Joe Biden and US House Republican Speaker Kevin McCarthy agrees to resume debt ceiling talks after initial failures.

While portraying the mood, S&P500 Futures print mild losses around 4,200 as it defends the previous day’s U-turn from the highest levels since August 2022. Further, the US 10-year and two-year Treasury bond yields also dropped to 3.65% and 4.23% in that order, which in turn portrays the market’s rush towards Treasury bonds for risk safety. It should be noted that Wall Street closed with minor losses on Friday as mixed concerns about the Fed and the US debt ceiling drama.

It’s worth noting that Senior White House Adviser Steve Ricchetti said, per Reuters, that they will keep working as he left the debt ceiling meeting early Monday during the Asian session. On the same line, US House Republican Speaker Kevin McCarthy spoke to reporters at the US Capitol following the call and said, per Reuters, that there were positive discussions on solving the crisis and that staff-level talks were set to resume later on Sunday.

Elsewhere, Federal Reserve Chairman Jerome Powell highlighted inflation fears on Friday and stated that the recent banking crisis, which led to tighter credit standards, has eased the pressure to hike interest rates. The same weighed on the hawkish Fed bets and allowed the US Dollar bulls to take a breather. That said, the market’s bets of a 0.25% Fed rate hike in June have recently increased and the calls for a rate cut in 2023 have gone down due to the last week’s upbeat United States economics and hawkish comments from the Federal Reserve (Fed) officials. With this, the market’s previous optimism fades ahead of the top-tier US data.

Looking ahead, the Federal Open Market Committee (FOMC) meeting minutes, preliminary readings of the May month Purchasing Managers Indexes (PMIs) and the Fed’s favorite inflation gauge, namely the US Core PCE Price Index, will be crucial to watch for clear directions. Above all, US debt ceiling announcements are the key to determining near-term US Dollar moves. Should the US policymakers manage to extend the debt ceiling, the market sentiment can improve and propel the US Dollar.

Also read: Forex Today: US Dollar holds firm despite improving risk appetite