S&P 500 Futures defend post Fed gains, Treasury bond yields stabilize as ECB, BoE decisions loom

• Market sentiment remains dicey as traders take a breather after Fed-led volatility.
• S&P 500 Futures track Wall Street’s gains to print mild gains near the highest levels since August 2022.
• US 10-year, two-year Treasury bond yields seesaw around two-week low.
• Key central bank announcements could propel volatility ahead of Friday’s US NFP.

Risk profile remains slightly positive even as market momentum fades after the Federal Reserve-inspired volatility. That said, the US Federal Reserve’s (Fed) dovish rate hike bolstered investor sentiment the previous day, backed by the downbeat US data. However, the cautious mood ahead of other major central bank announcements seems to probe the momentum traders of late.

While portraying the mood, Wall Street rallied and the US 10-year Treasury yields slumped the most in two weeks while testing the lowest levels in a fortnight. On the same line were the US two-year Treasury bond coupons which poke 4.11% level at the latest. It should be observed that the US 10-year yields lick their wounds near 3.41% while the S&P 500 Futures print mild gains around the highest levels since August 2022, tested the previous day, by the press time.

The Fed matched market forecasts of increasing the benchmark rate by 0.25% but the Monetary Policy Statement fuelled the market’s risk appetite while saying that the inflation “has eased somewhat but remains elevated”. Adding to the market’s optimism were comments from Fed Chair Jerome Powell as he said “We can declare that a deflationary process has begun.” The policymaker also accepts the need for rate cuts during late 2023 if inflation comes down much faster. Even so, Fed’s Powell suggested that a couple more rate hikes are needed to reach it.

On a different page, US ISM Manufacturing PMI dropped to the lowest levels since June 2020 while marking 47.4 figure for January, versus 48.0 expected and 48.4 prior. Further, the ADP Employment Change also declined to a one-year low with 106K the latest figure compared to the 178K market forecasts and the upwardly revised previous figure of 253K. On the contrary, JOLTS Job Openings rose to 11.012M in December, crossing 10.25M consensus and 10.44M prior readings.

It should be noted that the upbeat earnings from Meta also underpinned the market’s optimism and fuelled the Wall Street benchmarks toward refreshing monthly tops.

Moving ahead, markets are likely to witness lackluster session as traders could lick their wounds before the monetary policy meetings of the European Central Bank (ECB) and the Bank of England (BoE). Following that, Friday’s US Jobs report will be important for clear directions.