S&P 500 Futures struggle as yield curve inversion turns deepest since 1981 on hawkish Fed bets

• Market sentiment remains dicey after Fed Chair Powell-led volatility end to Tuesday’s North American session.
• S&P 500 Futures remain sidelined even as Wall Street closed in the red.
• US Treasury bond yields print the widest yield curve inversion in 40 years.
• Second-tier data, US-China headlines could entertain traders, bears can keep the reins unless Powell surprises markets in testimony 2.0.

Trading sentiment remains dicey during early Wednesday, after witnessing a volatile day, as market players seek more clues to extend the latest risk-off mood amid a light calendar in Asia.  It should be noted, however, that the bears keep the reins amid fears of higher interest rates and more US-China tensions even if the traders refrain from acting too vivid of late.

While portraying the mood, the S&P 500 Futures remain indecisive around the 3,992 level after falling the most in two weeks. On the other hand, the US 10-year Treasury bond yields rose 0.15% while closing around 3.97% on Tuesday but the two-year counterpart gained 2.60% on a day when poking the highest levels since 2007, to 5.02% at the latest. With this, the difference between the 10-year and two-year bond coupons marked the widest yield curve inversion in more than 40 years.

The yield curve inversion highlights the recession fears and supersedes the latest headlines suggesting the US removal of testing restrictions on travelers from China. The reason could be linked to the US-China tussles over Taiwan and Russia.

Above all, hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell play a key role in keeping the markets pessimistic. That said, Fed’s Powell surprised traders on Tuesday by showing readiness for more rate hikes and bolstered the bets of a 50 bps Fed rate hike in March. The policymaker propelled the “higher for longer” Fed rate expectations and bolstered the US Treasury bond yields while weighing on the equities.

Elsewhere, an uptick in the US Wholesale Trade in January and hawkish comments from the European Central Bank (ECB), as well as the Bank of England (BoE), officials also weigh on the market sentiment and underpins the US Dollar’s strength. The same weighs on commodity prices and exerts downside pressure on the Antipodeans.

Looking forward, the monetary policy meeting of the Bank of Canada (BoC) will join Fed Chair Powell’s second round of testimony and the US ADP Employment Change, the early signal for Friday’s US Nonfarm Payrolls (NFP), to entertain market players.