S&P 500 Futures fail to trace Wall Street, Treasury yields remain sluggish as Fed decision looms

• Global markets portray typical pre-Fed anxiety amid dovish hike expectations.
• Wall Street benchmarks cheered downbeat US data, strong earnings from major players.
• US Treasury bond yields stay depressed as inflation fears recede.
• Multiple PMIs to entertain traders, Fed Chairman Jerome Powell’s speech will be the key.

Market sentiment remains sluggish as traders brace for the Federal Open Market Committee (FOMC) monetary policy meeting on Wednesday. Adding to the mixed concerns are the fears of hawkish comments from Fed Chair Jerome Powell and mixed feelings on inflation, not to forget an absence of major data during the Asian session.

While portraying the mood, S&P 500 Futures print mild gains while consolidating the biggest daily gains in a week whereas the US 10-year and two-year Treasury bond yields remain sluggish at around 3.51% and 4.20% by the press time.

It should be noted that the firmer earnings data from the industry majors like General Motors, Exxon and McDonald’s pushed back recession woes and propelled the Wall Street benchmarks. That said, the Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq all three reported over 1.0% daily gains the previous day. On the other hand, the US 10-year Treasury bond yields snapped a three-day uptrend while revisiting 3.51% while the two-year counterpart also dropped to 4.20%.

While US data could be held responsible for the market’s previous optimism, the latest concerns that Fed Chair Powell won’t respect doves seem to have portrayed the dicey moves. That said, US Employment Cost Index (ECI) for the fourth quarter (Q4) eased to 1.0% versus 1.1% market forecasts and 1.2% prior readings. Further, the Conference Board (CB) Consumer Confidence eased to 107.10 in January versus 108.3 prior. It should be noted that no major attention could be given to the US Chicago Purchasing Managers’ Index (PMI) for January which rose to 44.3 versus 41 expected and 44.9 previous readings.

On the other hand, JP Morgan’s annual survey marked easing inflation fears and rising recession woes, which in turn probe the risk profile amid the pre-Fed anxiety. Even so, global rating giant Fitch expects the US Consumer Price Index (CPI) to moderate to mid-3.0% range in 2023 and high-2.0% range in 2024.

Elsewhere, a minor increase in China’s private activity gauge, after a notable improvement in the official PMI, joins Nomura’s downbeat Gross Domestic Product (GDP) forecast for the dragon nation to also challenge the sentiment.

To sum up, the pre-Fed caution can keep grinding the markets even as the PMIs from Eurozone, the UK and the US could offer intermediate moves. It should be observed that the hawkish comments from Fed’s Powell can bolster the US Dollar and weigh on risk appetite.

Also read: Federal Reserve Preview: The Good, the Bad and the Ugly, why the US Dollar would rise