S&P 500 Futures improve amid steady yields, Fed talks, inflation concerns in focus

• Market sentiment remains cautiously optimistic amid increasing sigs of Fed’s policy pivot.
• US inflation, FOMC Minutes increase odds of 0.25% Fed rate hike in May, as well as tease talks of pause in rate lifts.
• Geopolitical fears from North Korea, China join fears of easy economic growth to weigh on risk appetite.
• S&P 500 Futures print mild gains despite Wall Street’s downbeat closing, yields stabilize after falling the previous day.

Risk profile remains mildly positive as traders take a breather during early Thursday, after a volatile Wednesday. In doing so, the market players cheer hopes of easy rates while struggling with geopolitical and recession woes amid a sluggish Asian session.

While portraying the mood, the S&P 500 Futures print mild gains around 4,115 while snapping the three-day losing streak whereas the US Treasury bond yields seek clear directions after flashing the first daily loss in the week the previous day. On Wednesday, the US 10-year Treasury bond yields snapped a three-day uptrend with mild losses to around 3.40% while the two-year counterpart also eased to 3.96% by marking the first daily negative in five.

If we trace the receding fears of hawkish central bank actions, news/data from the US, Canada and Australia gain major attention. On the other hand, North Korea’s ballistic missile firing joins China’s dislike for the US-Taiwan ties and the Russia-Ukraine war to weigh on the sentiment. Also challenging the risk-takers are the fears of a recession in major economies, as conveyed by the International Monetary Fund (IMF).

On Wednesday, the US Consumer Price Index (CPI) dropped to the lowest level since May 2021, to 5.0% YoY in March from 6.0% prior and versus 5.2% market forecasts. However, the annual Core CPI, namely the CPI ex Food & Energy, improved to 5.6% YoY during the said month while matching forecasts and surpassing 5.5% prior.

Apart from the US inflation, the Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting also challenged the Fed hawks by stating that the expectations for rate hikes were scaled back due to the turmoil in the banking sector. “Several Federal Reserve policymakers last month considered pausing interest rate increases after the failure of two regional banks and a forecast from Fed staff that banking sector stress would tip the economy into recession,” mentioned Reuters.

Not only the US inflation and Fed Minutes, but comments from some of the Federal Reserve (Fed) Officials also suggest easing inflation and the need for a halt to the rate hike trajectory, which in turn weighed on the US Treasury bond yields and the US Dollar Index. That said, San Francisco Federal Reserve Bank President Mary Daly said that they had good news on inflation but added that she doesn't want to forecast the end of the tightening cycle. On the same line, Richmond Federal Reserve President Thomas Barkin said on Tuesday, in an interview with CNBC, that inflation certainly has peaked but warned that there are still ways to go. 

Furthermore, dovish comments from the Reserve Bank of Australia (RBA) Assistant Governor (Financial System) Michele Bullock join the Bank of Canada’s (BoC) status quo to underpin the mildly positive mood.

Elsewhere, Japan had to issue an emergency evacuation notice early in Asia on North Korean missile testing, which was later recalled, while China has already marked its ability to destabilize Taiwan if it chooses to be close to the White House. Furthermore, the IMF revised down global economic forecasts while keeping the Gross Domestic Product (GDP) estimations for China intact.

Having witnessed the market’s reaction to this week’s top-tier data/events, market players will seek more inflation clues and can trace the central bankers’ speeches for a clear direction.

Also read: Forex Today:  Dollar under pressure after US CPI, eyes on Australian employment