S&P 500 Futures grind higher as yields retreat amid mixed feeling for Fed, banking system

• Markets remain cautiously optimistic as policymakers rush to defend major banks in US, Europe.
• Mixed US data, hopes of no abrupt brake of monetary policy pattern add to the upbeat sentiment.
• Headlines suggesting fears among Fed policymakers, US Treasury Secretary Yellen’s comments prod optimists.
• Second-tier US data eyed as the last clues for next week’s FOMC.

A volatile week seems bracing for a calmer end as traders remain mostly inactive while showing mild optimism during early Friday. In doing so, the market players seem to take a sigh of relief as major policymakers manage to placate fears surrounding the global banking system, after the fallouts of banks in the US and Europe. However, doubts about the catalysts that caused such a panic joins the regulators calculated measures to probe the risk-on mood.

While portraying the mood, the S&P 500 Futures pick up bids to pare the intraday losses around 3,995, following an upbeat close of the Wall Street benchmarks, whereas the US Treasury bond yields fade the previous day’s corrective bounce off the monthly low.

That said, US 10-year and two-year Treasury bond yields struggle for clear directions around 3.56% and 4.18% respectively as the previous day’s rebound fails to reverse the two-week downtrend.

Recent headlines from the global rating agency Fitch suggesting no major challenges to the monetary policy of the US Federal Reserve (Fed), as well as the Asia-Pacific (APAC) banks, despite the fallouts of the US and European banks, seem to have favored sentiment of late.

On the same line could be the comments from Saudi National Bank's Chairman, Ammar Al Khudairy, conveying the “sound” conditions of Credit Suisse join the major US banks’ efforts to help California-based First Republic Bank to avoid a liquidity crunch to favor the risk-on mood. On the same line was the news that Credit Suisse eyes borrowing up to CHF50 billion from the Swiss National Bank (SNB) to strengthen liquidity, as well as Reuters quoting anonymous sources to confirm that the US banks are less vulnerable to the Credit Suisse debacle. Furthermore, US Treasury Secretary Janet Yellen’s assurance over the US banking industry’s health and European Central Bank’s (ECB) 50 bps rate hike, matching expectations, also favored the sentiment.

Alternatively, the Fed’s hiding of information that initially caused the liquidity crunch at the Silicon Valley Bank (SVB) joins US Treasury Secretary Yellen’s comments stating limited insurance to the bank deposits to probe the risk takers.  Additionally, challenging the sentiment could be a light calendar and the return of the hawkish Fed bets.

Looking ahead, traders should keep their eyes on the clues for the next week’s Federal Open Market Committee (FOMC) monetary policy meeting. Additionally, preliminary readings of the US Michigan Consumer Sentiment Index for March and the UoM 5-year Consumer Inflation Expectations for the said month will also be important for clear directions.

Also read: Forex Today: Unexpected consolidation, DXY drops as risk sentiment improves