- Risk appetite fades after two days of optimism amid recession fears and pre-Powell anxiety.
- S&P 500 futures fell half a percentage point as they reversed the rebound from the yearly low.
- 10-year US Treasury yields lose bullish momentum near 11-year high.
- Fed Chairman Jerome Powell may defend the bears by fueling rate hike expectations.
Global markets lose two-day optimism as traders await key testimony from Fed Chairman Jerome Powell amid recession fears. He also keeps risk aversion active on the lack of important data/events during the Asian session on Wednesday.
S&P 500 futures fell 1% intraday to reverse a two-day rebound from the lowest levels since late 2020. 10-year US Treasury yields dipped as much as 3.25%.
Fears about the aggressiveness of the Federal Reserve, as well as concerns about the recession in the US, act as the main catalysts that weigh on risk appetite. US President Joe Biden and Treasury Secretary Janet Yellen tried to convince markets that recession fears are not inevitable. In addition, Richmond Fed President Thomas Barkin said the US economy will not quickly return to the previous decade’s experience of stable growth, employment and inflation, Reuters reported.
On Tuesday, expectations about US President Joe Biden’s ability to tame energy prices joined bearish data to deliver another positive day.
“Oil prices tumbled in early trading on Wednesday amid a push by US President Joe Biden to cut rising fuel costs, including pressure on major US companies to help ease the pain for drivers during peak summer demand in the country,” Reuters said. Notably Biden eyes pause on federal gas tax to alleviate energy prices.
Meanwhile, US existing home sales fell to the lowest levels in two years on an annualized basis. Additionally, the Chicago Fed National Activity Index also fell to 0.01 in May, from a previously downwardly revised 0.04.
Looking ahead to today, traders are likely to remain cautious ahead of the Fed chair’s testimony on the biannual monetary policy report. If Powell manages to justify the biggest rate hike since 1994, and points to the Fed’s aggressiveness in containing inflation, risk-off sentiment could get a boost, which in turn could boost the US dollar and weigh on raw materials.
Source: Fx Street
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