S&P 500 Futures drop, yields grind higher as OPEC+ surprise renews inflation fears

Risk profile fades the previous optimism as the all-important US jobs report week begins with negative news from the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, known as OPEC+. Adding strength to the risk-off mood could be the downbeat China activity data, as well as recent hawkish comments from the Federal Reserve (Fed) officials.

While portraying the mood, the S&P 500 Futures retreat from a 1.5-month high while printing the first daily loss in four, down 0.30% intraday near 4,125 by the press time. On the other hand, the US 10-year and two-year Treasury bond yields print mild gains near 3.52% and 4.11% while paring the latest losses. It should be noted that the benchmark US 10-year Treasury bond yields dropped for the past three weeks and the past three consecutive days.

That said, the OPEC+ group announced nearly 1.16 million barrels per day of output cut in a surprise move during the week. In doing so, the Oil cartel propels fears of more price pressure and hawkish central bank moves. Following the OPEC+ news, the US National Security Council said. “We don’t think cuts are advisable at this moment given market uncertainty - and we’ve made that clear."

Elsewhere, China’s Caixin Manufacturing PMI for March drops to 50.0 from 51.6 prior and 51.7 market forecasts.

It should be noted that the recently hawkish comments from the Federal Reserve (Fed) officials and mixed US data also weigh on the market sentiment ahead of the key US employment report for March. That said, Federal Reserve Bank of Boston President Susan Collins and New York Fed President John C. Williams cited easing in inflation but highlighted the incoming data to determine the Fed’s next moves. Previously, Fed Chair Jerome Powell signaled one more rate hike but failed to offer a tailwind to the US Dollar Index (DXY), up 0.33% intraday near 102.32 by the press time.

Talking about the data, the US Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, declined to 4.6% YoY in February from 4.7% expected and prior. On a monthly basis, Core PCE inflation rose 0.3% while easing below the market expectation of 0.4% and a downwardly revised 0.5% previous reading. Further, the Chicago PMI reading for March was stronger than expected at 43.8pts, but this is still a relatively weak level and consistent with the slowing of the manufacturing sector in the US. On the same line, the final readings of the University of Michigan's (UoM) Consumer Confidence Index dropped to 62.0 in March, versus 63.4 flash estimations and 63.2 market forecasts. Current Economic Conditions fell from 70.7 in February to 66.3 and the Index of Consumer Expectations declined from 64.7 to 59.2.

The UoM report mentioned regarding inflation that the year-ahead expectations “receded from 4.1% in February to 3.6%, the lowest reading since April 2021, but remained well above the 2.3-3.0% range seen in the two years prior to the pandemic.” Five-year expectations came in at 2.9% for the fourth consecutive month.

Alternatively, receding fears of bank crisis join the easing hawkish bets on the Fed’s next moves to challenge the pessimists. As per the latest readings of CME’s FedWatch Tool, market players place nearly 45% probability on the 0.25% Fed rate hike in May, versus 52% marked on Friday.

Moving on, US ISM Manufacturing PMI and S&P Global Manufacturing PMI for March can direct intraday moves but major attention should be given to Friday’s US Nonfarm Payrolls (NFP).

Also read: Forex Today: Focus shifts to US employment data