S&P 500 with modest losses on US default fears, focus on inflation and banking sector

• Market sentiment fades earlier optimism as US debt ceiling issues intensify ahead of this week’s major data/events.
• S&P 500 futures cap Friday’s strong gains around 4,100 points, US Treasury yields remain under pressure.
• The light economic calendar on Monday distracts traders, but US CPI, the Bank of England decision and the Banking Survey will be crucial for further momentum.

The risk profile remains unimpressive in the early hours of Monday as traders lack new clues to extend earlier optimism. The news that suggest increased fear of US default and the consequences for the banking sector add tension to market sentiment. However, the Fed’s dovish rate hike and fears that policymakers will be able to cope with the challenges join upbeat news from Apple to keep traders hopeful at the start of a key week with US inflation data.

Portraying the mood, S&P 500 futures mark slight losses close to 4,147 points after registering a stellar rise last Friday. That being said, Wall Street benchmarks welcomed the downward revision of US Non-Farm Payrolls (NFPs) and the good results of Manzana to mark the upbeat close to the volatile week.

On the other hand, 10-year US Treasury yields fell 1.5 basis points (bp) to 3.43%, under pressure for the third week in a row, while its 2-year counterpart did the same near 3.92% at the time of writing.

The rise in US Non-Farm Payrolls (NFP) for April failed to divert market attention from earlier downwardly revised readings and joined indirect signals from the Federal Reserve (Fed) about the turnaround in monetary policy. That being said, the US Bureau of Labor Statistics (BLS) released an increase in non-farm payrolls (NFP) by 253,000 and revised down previous readings of 165,000. In addition, the unemployment rate also eased to 3.4% vs. 3.5% expected by the market, while average hourly earnings improved to 4.4% yoy from 4.3% previously (revised) and analyst estimates for the 4.2%

On the other hand, the US Secretary of the Treasury, Janet Yellen issued a stark warning on Sunday: if Congress does not act on the debt ceiling, a “constitutional crisis” could be triggered which would also call into question the solvency of the federal government, according to Reuters.

Besides, America’s banking problems worsen pending the survey on banks’ credit practices.

Besides, the hard-line comments of the president of the Federal Reserve of St. Louis, James Bullardwhich supported the 25 basis point rate hike the Fed took last week, also weighed on sentiment during a softer start to a key week.

Looking ahead, the Monday bank holiday in the UK and France may limit immediate market moves before it is released on Wednesday the Consumer Price Index (CPI) for April in the United States, as well as the results of the American banking survey. You will also have to be attentive to the Bank of England monetary policy meeting and the Gross Domestic Product (GDP) of the United Kingdom of the first quarter of 2023.