S&P 500 Futures dribble near one-week low as yields fade post-Fed rally

• Market sentiment remains sluggish even as Fed’s Powell sounded hawkish.
• Headlines surrounding North Korea, China join fears of recession to weigh on risk profile.
• Yields retreat from multi-day high, stock futures hesitate in following Wall Street’s losses.
• BOE, risk catalysts could entertain traders ahead of Friday’s NFP.

The risk profile remains blurred during early Thursday as traders lick their wounds after Fed-inspired volatility. Also amplifying the sluggish markets could be the anxiety ahead of today’s key Bank of England (BOE) monetary policy decision and Friday’s US Nonfarm Payrolls.

That said, escalating geopolitical tensions between North Korea and Japan join the risk-negative covid news from China to exert downside pressure on the sentiment. On the same line could be the Fed’s readiness for further rate hikes.

While portraying the mood, the S&P 500 Futures remain indecisive as it flirts with the one-week low, probing a three-day downtrend, whereas the US Treasury yields retreat from the post-Fed highs. It should be noted that the US 10-year bond coupons ease to 4.096% while its two-year counterpart snaps a four-day uptrend as it drops to 4.611% at the latest.

That said, North Korea’s firing of missiles and Japan’s warning to residents weigh on the market’s risk profile, which in turn weighs on the risk barometer pair. On the same line could be the coronavirus fears from China as the lockdown surrounding the area involving the world’s largest iPhone factory defied hopes of easing the dragon nation’s zero-covid policy. Additionally, Reuters quotes China’s latest National Health Commission figures to suggest an uptick in coronavirus cases. The news states, “China reported 3,372 new COVID-19 infections on Nov. 2, of which 581 were symptomatic and 2,791 were asymptomatic.”

On Thursday, Fed’s 75 bps increase in the benchmark rate initially drowned the US Treasury yields as the rate statement highlighted the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.  However, Powell’s speech propelled the greenback as it cited the need to bring down inflation “decisively” while also suggesting a bit longer play for the restrictive policy.

Against this backdrop, the US Dollar Index (DXY) drops and prices of commodities, as well as Antipodeans, consolidate the previous day’s losses.

Moving on, the BOE is less likely to offer any relief to the market sentiment unless providing a surprise move and hence, the yields are likely to regain the upside momentum, which in turn could weigh on the equities and commodities. However, the US dollar may witness hardships in rising ahead of Friday’s US jobs report.

Also read: S&P 500 seesaws between 3830-3896 post-Fed decision, on Powell commentary