Talking Points:

• As economic uncertainties combine with aggressive Fed bets, the market mood remains negative.
• On the Juneteenth holiday, the S&P 500 futures remain depressed around the annual low, while yields remain stable.
• The Fed’s Powell is in the spotlight, as well as updates on China’s covid situation. Sino-American connections are also crucial for a new jolt of energy.

During a sluggish Asian trading session today, fears of an economic slowdown and hopes of higher Fed rates, dampening risk appetite. However, the US stock and bond markets are limited by a light calendar and the Juneteenth holiday.

The S&P 500 Futures, on the other hand, fell 0.20 % intraday to 3,672, reversing Friday’s corrective pullback from the yearly low. It’s worth noting that the 10-year Treasury yields in the US have remained unchanged at 3.23 % throughout the holidays.

The Washington Post (WaPo) expressed concern about a difficult new economic climate as a result of the US Federal Reserve’s (Fed) 75-basis-point (bps) rate hike. The Fed’s rate hike triggered a high-stakes test of the economy’s ability to wean itself off of limitless credit and accept higher borrowing costs for households, firms, and the government, according to the news. Concerns regarding China’s 3.0 % growth in the second quarter (Q2) of 2022 were raised at the same time.

Fears of a recession, as well as hawkish Fed bets, were also major factors influencing market mood. Among them were policymakers from the US central banks, including Minneapolis Fed President Niel Kashkari, who favoured another 75 bps rate hike in July. Treasury Secretary Janet Yellen also stated her projections for a slowing economy, although she dismissed recession fears.

In contrast, today’s announcement from the People’s Bank of China (PBOC) kept its major monetary policy rates, notably the 5-year and 1-year Loan Prime Rates (LPRs), unchanged at 4.45 % and 3.70 %, respectively. The Chinese central bank’s inaction contrasts with the hawkishness of Western authorities, but it fails to restore market confidence.

A report from news outlets says that “President Joe Biden’s administration is reviewing the removal of some tariffs on China,” as well as positive covid news from Beijing and Shanghai, all contribute to the market’s cautious confidence.

It’s worth noting that the cautious tone ahead of Fed Chairman Jerome Powell’s testimony, along with the US holiday, may limit intraday movement.