S&P500 Futures grind higher, yields slide as full markets depict cautious optimism ahead of key data, events

• Market sentiment improves on full markets’ initially positive reaction to US debt-ceiling deal.
• S&P500 Futures grind higher, yields fade upside momentum.
• Fears surrounding the agreement’s passage through Congress, hawkish Fed bets and anxiety before crucial data prod optimists.
• US CB Consumer Confidence will decorate calendar, risk catalysts are the key.

Risk profile remains mildly positive during early Tuesday as a return of the full markets cheer the weekend agreement in the US to avoid the ‘catastrophic’ default. Adding strength to the cautious optimism are the recently firmer US data and hopes of no recession in the world’s biggest economy, even as spending power bears the burden of higher inflation.

While portraying the mood, the S&500 Futures print mild gains around 4,220 after retreating from the yearly high the previous day. On the same line, the US 10-year Treasury bond yields dropped five basis points (bps) to 3.76% whereas the two-year counterpart reverses from the 11-week high to print the first daily loss since May 11 to around 4.58% by the press time.

Markets in the US, Germany, Switzerland and the UK were off the previous day and stopped traders from cheering the weekend news suggesting the US policymakers’ deal on the debt-ceiling extension to January 2025. The same allowed the traders to begin the ‘real’ trading week with hopes of overcoming the fears of the US failure to pay its debts.

However, some of the policymakers, mostly Republicans, are against the compromises made to their previous demands to reach the deal. The policymakers also show readiness to challenge the agreement in the House, as well as in the Senate, which in turn prods the market’s previous risk-on mood and keeps the US Dollar on the front foot. “A handful of hard-right Republican lawmakers said on Monday they would oppose a deal to raise the United States' $31.4 trillion debt ceiling, in a sign that the bipartisan agreement could face a rocky path through Congress before the US runs out of money next week,” said Reuters.

On a different page, fresh fears of the Eurozone recession, emanating from a downward revision to Germany’s first quarter (Q1) Gross Domestic Product (GDP) figures, join the US-China woes to also challenge the sentiment. Late on Monday, China turned down the US request for a meeting of the Defense Chiefs in Singapore, per the Wall Street Journal (WSJ).

Looking ahead, sentiment numbers from Eurozone and the US will decorate the calendar and should be watched closely amid recently increasing hawkish Fed bets. Additionally important will be the full market’s reaction to the latest developments about the US default. Above all, Wednesday’s US House voting on the debt-ceiling agreement and the Senate’s approval for the same before June 05, as well as Friday’s US jobs report, gains major attention.

Also read: Forex Today: With US debt ceiling deal reached, focus turns to economic data