Yields, S&P 500 Futures hold onto recovery moves amid Fed, China concerns

• Market sentiment remains cautiously optimistic amid a quiet session.
• Powell’s 50 bps rate hike, downbeat US data join hopes of faster recovery from covid to underpin positive mood.
• PBOC holds MLF rate unchanged ahead of the key data dump from China.
• US Retail Sales, risk catalysts eyed for fresh impulse.

Global traders keep the previous day’s upbeat mood, despite failing to bolster the bullish bias, amid a quiet Asian session on Monday. The market sentiment remains mildly positive as the latest Fedspeak and the US data join positive headlines from China to keep buyers hopeful. However, geopolitical fears from Europe remain on the table to test the optimism.

While portraying the mood, the S&P 500 Futures print mild gains after the Wall Street benchmarks rallied the previous day. Further, the US 10-year Treasury yields also extend Friday’s recovery moves, up 1.5 basis points (bps) around 2.95% by the press time.

That said, downbeat prints of the US Michigan Consumer Sentiment Index for May, backed by Fed Chair Jerome Powell’s repetition of 50 bps rate hikes concerns, triggered the market’s rebound the previous day.

The positive mood also took clues from the downbeat US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. That said, the inflation precursor dropped to the lowest levels since late February, before portraying a corrective pullback to 2.69%.

Furthermore, hopes of easing the virus spread in China spread optimism in Asia as the latest covid update from Reuters suggests softer numbers from Shanghai. “Chinese financial hub Shanghai reported 869 new local asymptomatic coronavirus cases for May 15, down from 1,203 a day earlier. Confirmed symptomatic cases fell to 69, from 166 the previous day, data released on Monday showed,” said the news.

It’s worth noting that the People’s Bank of China’s (PBOC) refrains from any change in the Medium-Term Lending Facility (MLF) rate, for 1-year it's around 2.85% at the latest, also keeps the traders hopeful.

Meanwhile, worsening geopolitical concerns in Ukraine joins the European Union’s (EU) plan for more sanctions on Russia to weigh on sentiment. Also challenging the mood are broad fears over inflation and economic growth moving forward, mainly due to the covid resurgence in China and the Russia-Ukraine tussles, not to forget tighter monetary policies.

Given the light calendar on Monday, except for China’s Retail Sales and Industrial Production (IP) data, market players may extend Friday’s moves with eyes on qualitative catalysts. That said, the traders’ rush for clues to confirm the global economic challenges surrounding inflation also highlights this week’s US Retail Sales data for April as the key factor to follow.

Also read: Macro and Prices: Sentiment swings between inflation and recession