S&P 500 Futures, US Treasury bond yields portray market fears, focus on recession, Fed

Markets begin the key week on a negative note as recession woes join the pre-data/event anxiety during early Monday. The risk-off mood, however, fails to gain major attention amid a light calendar and mixed concerns.

While portraying the mood, the S&P 500 Futures print mild losses near 3,960 while tracking Friday’s downbeat close of Wall Street. Further, the US 10-year Treasury yields remain firmer around 3.58%. It should be observed that the US 2-year Treasury bond yields flash 4.35% as the latest quote.

In addition to the yield curve inversion, which portrays the recession woes, the recently firmer US data and comments from the US Treasury Secretary Janet Yellen also weigh on the market sentiment.

As per the latest US data, the Producer Price Index (PPI) matched the market forecasts of 7.4% YoY for November versus 8.1% prior. Further, the Core PPI rose to 6.2% YoY versus 6.0% expected and 6.7% previous readings. Additionally, preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index rose to 59.1 for December versus 53.3 market forecasts and 56.8 final readings for November. Moreover, the 1-year inflation expectations dropped to 4.6%, the lowest since September 2021 while compared to 4.9% expected whereas 5-10 year expectations were stable at 3.0%. It should be noted that the US ISM Services PMI improved to 56.5 versus 54.4 expected.

That said, US Treasury Secretary Janet Yellen said, “There's a risk of a recession, but it certainly isn't something that is necessary to bring inflation down.” Further, the economic slowdown fears could be linked to the yield curve inversion as the US 10-year Treasury bond yields and the two-year bond coupons portray a negative difference.

It should be noted that China’s gradual easing of the Zero-Covid policy and the recent stimulus, mainly to the struggling real-estate sector, challenge the market bears ahead of the US inflation numbers and the Federal Reserve’s (Fed) monetary policy meeting. Other than that, the preliminary readings of December’s PMIs and monetary policy meetings of the European Central Bank (ECB), as well as the Bank of England (BOE), are also important events to watch for the market players for clear directions.