S&P500 Futures, yields reflect cautious mood as US debt ceiling vote looms

• Market sentiment turns dicey, slightly negative, ahead of top-tier data/events.
• Risk-negative signals from US data, Republicans’ statements join softer China PMIs to tease bears.
• German inflation, US JOLTS Job Openings and House voting on measures to avoid US default will be the key.

Risk appetite remains sluggish, mostly downbeat, as traders fear US default, slower economic growth ahead of the key data/events.

That said, mixed US data joins fears of economic slowdown, backed by Richmond Fed Thomas Barkin’s latest comments, to underpin the markets’ cautious mood. On the same line could be the anxiety ahead of the key data/events. It should be noted that the fears of the US default also weigh on the sentiment even if the recent challenges to the hawkish Fed bets allow bears to take a breather.

While portraying the mood, the S&P500 Futures remain indecisive, mildly offered around 4,220 by the press time, after a mixed Wall Street close whereas the US Treasury bond yields stay depressed of late. Furthermore, the US Dollar Index (DXY) portrays inaction around 104.00, after snapping a six-day uptrend near the highest levels in 10 weeks.

Talking about the data, the Conference Board's (CB) Consumer Confidence Index edged lower to 102.30 for May from an upwardly revised 103.70 prior marked in April (from 101.30). Additional details of the survey report mentioned that the one-year consumer inflation expectations ticked down to 6.1% in May from 6.2% in April. Further, the Dallas Fed Manufacturing Business Index for May dropped to -29.1 from -23.4 and versus -19.6 market expectations.

Richmond Fed President Thomas Barkin was in line with the data as he said that he is seeing evidence that interest rate hikes are curbing demand.

Elsewhere, China’s official PMIs came in mixed, mostly downbeat, even as Non-Manufacturing PMI appeared less destructive.

Moving on, markets may witness a lackluster day ahead as markets can turn cautious ahead of the key US event, namely the House voting on the US debt ceiling deal. Also important to watch is the US JOLTS Job Openings for April, expected 9.375M versus 9.59M prior, as well as the Chicago Purchasing Managers' Index for May, likely to fall to 47.0 from 48.6.

Should the US Republicans bloc the debt limit extension, the traders may witness a shock and the same can propel riskier assets, which in turn keeps the pessimists hopeful. However, the US Dollar may not be able to cheer the same and hence can prod the bears provided the US data disappoints with a huge margin.

Also read: Forex Today: Debt limit deal faces hurdles; key events ahead for the Aussie