US T-bond yields, S&P 500 Futures portray pre-Inflation anxiety

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  • US 10-year bond yields pause two-day pullback from yearly top, 2-year ease for the second consecutive day.
  • S&P 500 Futures fail to track Wall Street gains.
  • Powell’s Testimony triggered risk-on moves the previous day.
  • China inflation, virus woes and World Bank GDP forecasts test market players ahead of US CPI.

Global markets witness a sluggish start to Wednesday as cautious sentiment ahead of the key US inflation probes the previous optimism fuelled by US Federal Reserve Chairman Jerome Powell.

Also challenging the risk appetite are the fears of the coronavirus strain linked to South Africa, namely Omicron, as well as downbeat China CPI/PPI data, not to forget the World Bank economic forecasts for 2022.

While portraying the mood, the US 10-year Treasury yields remain pressured around 1.741% while the 2-year bond coupon drops for the second consecutive day, down 1.2 basis points (bps) near 0.887 at the latest. Further, S&P 500 Futures struggle to track the Wall Street gains, unchanged around 4,705 by the press time.

Both the key measures on China’s inflation eased December and challenged the already sluggish markets of late. That said, the headline Consumer Price Index (CPI) eased below 1.8% forecast and 2.3% prior to 1.5% YoY while the MoM readings also dropped to -0.3% compared to +0.2% expected and +0.4% previous readouts. Additionally, the factory-gate inflation, namely the Producer Price Index (PPI) also dropped below 11.1% expected and 12.9% prior, to 10.3% YoY for December.

On the other hand, a fresh record of daily covid infections in Australia and the announcement of public health emergency in Washington DC also probe the risk-takers. Additionally, a jump in China’s virus cases, recently by 166 versus 110 a day earlier, adds to the trading filters.

Elsewhere, downbeat economic forecasts from the World Bank (WB) also challenge the previous market optimism. The WB cited coronavirus woes to cut the global GDP expectations for 2022 to 4.1% from 4.3% previous estimations. The World Bank also trimmed the US and Chinese economic forecasts, by 0.5% to 3.7% and by 0.3% to 5.1% in that order, for 2022.

It should be noted that Fed Chair Jerome Powell’s testimony before the Senate Banking Committee could be cited as the major positive factor for the market’s upbeat performance on Tuesday. That said, Fed’s Powell showed readiness to hike interest rates but remained cautious over balance sheet normalization. However, the Fed Boss also expected that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived.

As a result, today’s US CPI for December, to 7.0% YoY versus 6.8% prior, will be a crucial number to watch as higher inflation can renew the risk-off mood.

Read: Forex Today: Fed Powell put the dollar in sell-off mode ahead of US inflation data