Treasury yields dribble, stock futures pare weekly losses with eyes on US inflation

• Market sentiment improves amid hopes of softer US inflation, mixed Fedspeak.
• US Treasury yields remain sidelined, pressured after stepping back from 20-year high.
• S&P 500 Futures, Euro Stoxx 50 Futures extend previous day’s rebound from yearly low.
• US CPI ex Food & Energy appears crucial amid chatters over 75 bps rate hike.

Global markets portray a typical pre-data consolidation, with softer yields and firmer stock futures, as traders await US Consumer Price Index (CPI) data heading into Wednesday’s European session. The cautious optimism takes clues from expectations of easing inflation pressure in the US, as well as headlines from China, amid mixed comments from the Fed speakers.

That said, the US 10-year Treasury yields print a three-day downtrend by shedding 2.5 basis points (bps) to 2.966% by the press time. It’s worth noting that the key bond yields refreshed a 20-year high on Monday before reversing from 3.20%.

Also portraying a mildly positive mood are the gains of stock futures from the US and Europe. The S&P 500 Futures and Euro Stoxx 50 Futures extend the previous day’s recoveries from the year and a two-month low in that order. With this, the S&P 500 Futures add 16.75 points, or 0.42% to regain the 4,012 level whereas the Euro Stoxx 50 Futures rise 1.0%, or 35 points, to 3,563 by the press time.

Comments from Atlanta Fed President Raphael Bostic, crossed wires during the early Asian session, initially favored a risk-on mood as he mentioned that the US economy is strong and demand is high while also expecting the neutral rate at 2.0-2.5%. Even so, Cleveland Fed President and FOMC member Loretta Mester keep the market bears hopeful as she said that the Fed doesn't rule out a 75 basis points rate hike forever.

On the other hand, ECB policymakers refrained from reiterating the July rate hike concerns during their latest comments. Among them are European Central Bank (ECB) policymaker Madis Muller and ECB Governing Council member, as well as Bank of France's head, Francois Villeroy de Galhau.

Also favoring the prices could be headlines from Shanghai local authorities that mentioned no virus spread in eight districts.

However, China’s strict “Zero Covid Tolerance” policy and fears of further escalation in the Russia-Ukraine crisis join central bankers’ rush towards tighter monetary policies to favor bears.

Hence, trades take solace ahead of a likely risk-positive print of the US CPI, expected to ease to 8.1% from 8.5%. However, a major focus will be on the US Consumer Price Index ex Food & Energy figures which are likely to ease to 6.0% YoY versus 6.5% prior. Should the inflation figures refrain from easing for April, the US Treasury yields could take the US dollar with it to refresh multi-day high while equities and commodities may reverse recent gains.

Read: US April CPI Preview: Has inflation peaked?