US Treasury yields consolidate recent losses as traders await Fed signals

• US bond yields reverse pullback from December’s high, S&P 500 Futures stay mildly bid around record top.
• Market remains indecisive ahead of the key central bank meetings, Friday’s US inflation offered a relief rally.
• Qualitative catalysts to offer short-term direction before the calendar heats up.

Global traders remain cautiously optimistic heading into the key weekly events, namely the US Federal Reserve (Fed) and the European Central Bank (ECB) monetary policy meetings.

Investors cheered an absence of any major surprises from the US inflation data the previous day. However, fears of faster tapering by the Fed and challenges surrounding the South African covid variant, dubbed as Omicron, test the bulls of late.

While portraying the mood, the US 10-year Treasury yields rose 1.2 basis points (bps) to regain 1.50% level whereas the S&P 500 Futures print 0.36% intraday gains by the press time. Furthermore, Asia-Pacific stocks trade mixed and the US Dollar Index (DXY) adds a few pips to defend the 96.00 threshold at the latest.

The US Consumer Price Index (CPI) flashed a fresh 39-year high but matched market forecasts of 6.8% YoY for November. Also adding to the traders’ confidence were the stable inflation expectations revealed via the University of Michigan Consumer Sentiment Index.

It should be noted, however, that the escalating Omicron cases in the West hint at higher inflation and the need to further roll back the easy money policies. Furthermore, the US-China tension and financial risks emanating from Beijing-based companies like Evergrande and Kaisa also challenge the optimists.

Looking forward, a lack of major data/events and cautious sentiment before the key central bank meeting may keep the traders chained. However, bears are holding high hopes from the Fed and hence scope of disappointment, followed by heavy repercussions, can’t be ruled out.

Read: When the Facts Change: US Inflation becomes the dominant economic topic