S&P500 Futures fade corrective bounce, yields retreat as US debt ceiling deal is still absent

Risk profile remains downbeat during early Friday as concerns about US debt limit expiration flash mixed signals. Adding to the market jitters can be the cautious mood ahead of the Federal Reserve’s (Fed) preferred inflation gauge and the US Durable Goods Orders for April.

While portraying the mood, S&P500 Futures print mild losses around 4,150, fading the previous day’s corrective bounce, whereas the US 10-year and two-year Treasury bond yields seesaw near the highest levels since early March, close to 3.82% and 4.54% in that order. It’s worth noting that the US Dollar Index (DXY) retreats from a 2.5-month high to 104.17 by the press time whereas the Gold price portrays a corrective bounce near $1,947 at the latest.

US policymakers’ inability to clinch a deal on the US debt ceiling extension contrasts with the chatters suggesting a $70.0 billion gap left to be filled by the negotiators to get the much-awaited deal. Recently, US House Speaker Kevin McCarthy announced no agreement on the debt deal, as well as the continuation of talks by saying, “It’s hard. But we’re working and we’re going to continue to work until we get this done.”

It should be noted that the US Treasury Department keeps flagging recession woes if the policymakers fail to reach a deal on the US debt ceiling extension before June.

Elsewhere, upbeat US data underpins hawkish Fed bets and weigh on the market sentiment. On Thursday, the second estimation of the US Annualized Gross Domestic Product (GDP) for Q1 2023 was revised up to 1.3% versus 1.0% first forecasts. Further, the Chicago Fed National Activity Index for April improved to 0.07 from -0.37 prior and -0.02 market estimations. On the same line, Kansad Fed Manufacturing Activity improved to -2 for May compared to -21 previous readings and analysts’ estimations of -11. It’s worth noting that the US Pending Home Sales for April improved on YoY but eased on MoM whereas Core Personal Consumption Expenditures also rose to 5.0% during the preliminary readings versus 4.9% prior.

Even so, mixed comments from the Fed policymakers prod the hawkish bias about the US central bank and defend the risk profile. In his latest speech, Richmond Fed President Thomas Barkin said, “Fed is in a test and learn situation to determine how slowing demand lowers inflation.” On the different front, Boston Federal Reserve President Susan Collins said on Thursday that the Fed "may be at or near" the time to pause interest rate increases, as reported by Reuters.

Looking forward, US debt ceiling negotiations will be crucial to gauge the market moves while the US Durable Goods Orders for April and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge, can also entertain the traders.

Also read: Forex Today: US Dollar remains firm and antipodeans fall off a cliff