S&P500 Futures Hit 5-Week Low, Yields Reach Yearly High on Hawkish Fed Minutes and Global Woes

The risk appetite in the market remains downbeat as investors express concerns over a hawkish Federal Reserve stance amidst global economic woes. Additionally, challenges to market sentiment arise from geopolitical and economic troubles emanating from China, along with recently mixed data from the United States.

Reflecting this mood, S&P500 Futures have dropped to their lowest level in five weeks, hovering around the multi-day bottom at around 4,415-20 at present. This decline mirrors the losses made by the Wall Street benchmark.

In other developments, the yield on the US 10-year Treasury bond has risen to its highest level since October 2022, reaching approximately 4.298% most recently. It is worth noting that such high bond coupon levels have triggered fears of an economic slowdown and have negatively impacted riskier assets. Additionally, this surge in yields has bolstered the US Dollar, as witnessed towards the end of 2022.

Concerns about potential economic slowdowns in the 10 developed economies, supported by the Fitch Ratings’ quarterly Global Economic Outlook report, are also weighing on market sentiment. As a result, the US Dollar Index has reached a two-month high, while the prices of Gold and WTI crude oil remain under pressure.

The latest minutes from the Federal Reserve meeting have highlighted discussions among policymakers regarding inflation pressures, despite divisions on the decision to raise interest rates. The minutes revealed that most policymakers favored taking action against persistent inflation. This information has provided justification for a hawkish Federal Reserve stance, especially in light of positive Retail Sales figures and US Industrial Production.

Meanwhile, China’s housing prices experienced a slump in June, marking the first decline of the year. This development adds to concerns about another bond market crisis in the country, particularly as the largest private realtor, Country Garden, struggles to make bond payments. Despite the efforts of Chinese policymakers to alleviate concerns about economic recovery, there has been no significant market reaction, raising worries about a potential recession in the world’s second-largest economy.

Looking ahead, market participants should keep an eye on the US weekly jobless claims and the Philadelphia Fed Manufacturing Survey for August as intermediate indicators. However, the direction of the market will ultimately depend on key risk factors.