S&P 500 Futures refresh three-week high, yields dribble as hawkish Fed bets ease ahead of US, EU inflation

• Risk appetite remains firmer as markets anticipate easing inflation woes to prod Fed hawks.
• Optimism about banking sector, mixed US data supersede Federal Reserve officials’ push for higher rates.
• S&P 500 Futures print three-day winning streak to refresh multi-day top, bond yields remain sidelined.
• Eurozone HICP, US Core PCE Price Index will be important for fresh impulse.

Market sentiment remains firmer as traders flex muscles for the key Friday comprising headline inflation clues from Eurozone and the US. Adding strength to the market’s cautious optimism are the recently easing hawkish Fed bets and mixed US data, not to forget the policymakers’ rejections of the banking crisis.

While portraying the mood, the S&P 500 Futures refresh a three-week high near 4,095, rising for the third consecutive day, as it traces Wall Street’s upbeat sentiment. That said, the US 10-year Treasury bond yields rose two basis points (bps) to 3.57% whereas the two-year counterpart grinds higher to 4.13% during a five-day uptrend.

Federal Reserve Chairman Jerome Powell joined three other Fed Officials to back further rate hikes on Thursday, citing the need to tame the inflation woes. However, mixed US data raise doubts about the Fed policymakers’ hawkish rhetoric and rather concentrated on their rejections of banking crisis woes to reduce the bets of a 0.25% rate hike in the next Federal Open Market Committee (FOMC) Monetary policy meeting, in May.

Not only the central bankers from the US but the European Central Bank (ECB), Bank of England (BoE) and the Swiss National Bank (SNB) officials have also recently pushed back the fears of the banking crisis.

As a result, the CME’s FedWatch Tool suggests a nearly 50% chance of a 0.25% rate hike in the May Fed meeting, versus 60% the previous day.

It should be noted that China’s upbeat activity data and softer US numbers also propel the risk-on mood. That said, China’s headline NBS Manufacturing PMI rises to 51.9 versus 51.5 expected and 52.6 prior while the Non-Manufacturing PMI jumps to 58.2 from 56.3 previous readings. On the same line could be comments from China's Premier Li Qiang who said that the economic situation in March is even better than in January and February.

On the other hand, final readings of the US fourth quarter (Q4) Gross Domestic Product (GDP), also known as the Real GDP, marked an easy Annualized growth number of 2.6% versus 2.7% previous forecasts. It’s worth noting that the Q4 Personal Consumption Expenditure (PCE) Prices matched 3.7% QoQ forecasts and prior while the Core PCE figure grew to 4.4% QoQ versus 4.3% expected and prior. Moving on, the Weekly Initial Jobless Claims rose to 198K for the week ended on March 25 versus 191K prior and 196K market forecasts.

Looking ahead, the Eurozone Harmonised Index of Consumer Prices (HICP) for March and the United States Core Personal Consumption Expenditure (PCE) Price Index for February should be closely watched for clear directions.

Also read: Forex Today: DXY under pressure amid risk appetite; focus turns to US inflation data