S&P 500 Futures pare weekly loss, Treasury bond yields bounce off multi-day low amid mixed sentiment

  • Market sentiment remains cautious optimistic as fears of rate hikes jostle with China-linked optimism.
  • Softer US data exert downside pressure on DXY but hawkish Fedspeak put a floor under the prices.
  • PBOC’s status quo, China-Taiwan tension fails to get major attention.
  • Fear of higher rates emphasizes central bank comments amid light calendar.

Markets seek more clues to defend the turnaround Thursday’s moves during early Friday. Even so, the sluggish US Dollar joins optimism surrounding China to keep the bulls positive amid a mostly inactive Asian session.

While portraying the mood, S&P 500 Futures print mild gains despite Wall Street’s second consecutive daily loss. However, the US 10-year and two-year Treasury bond yields extend the previous day’s rebound from the lowest levels since September and early October respectively. That said, the US 10-year Treasury yields stay inactive near 3.40% while the two-year counterpart seesaw near 4.14% by the press time.

It’s worth noting that the People’s Bank of China’s (PBOC) status quo joins downbeat US data to fill the positives amid an interesting day. That said, PBOC kept the one-year and five-year LPRs unchanged at 3.65% and 4.30%, as expected, during its latest monetary policy meeting. With this, the Chinese central bank keeps the rates unchanged for the fifth consecutive month and defends its easy-money policy.

On the other hand, the US Unemployment Claims dropped to the lowest levels since late April 2022, to 190K for the week ended on January 13 versus 214K expected and 205K prior. Further, the Philadelphia Fed Manufacturing Survey Index improved to -8.9 for January compared to -11.0 market forecasts and -13.7 previous readings. However, US Building Permits eased in December to 1.33M MoM versus 1.37M consensus and 1.351M prior while the Housing Starts also dropped to 1.382M during the stated month from 1.401M in November, versus 1.359M expected. Previously, the downbeat US Retail Sales and Producer Price Index (PPI) raised fears of a recession in the world’s largest economy after the softer wage growth and activity data flashed earlier.

It should, however, be observed that the hawkish comments from the Federal Reserve (Fed) officials during their last speeches before Saturday’s pre-Fed blackout joins Taiwan-linked fears to weigh on the sentiment.

Recently, Federal Reserve Bank of New York President John Williams said that the US central bank has more rate hikes ahead and sees signs inflationary pressures might be starting to cool off from torrid levels. Late Thursday, Fed Vice Chair Lael Brainard said that it will take time and resolve to get high inflation down to the fed’s 2% target. The policymaker also added, “The policy will need to be sufficiently restrictive for some time.” On the same line, Boston Fed President Collins signaled that the baseline remains that the effective fed funds rate should settle slightly above 5.0%, implying three more 25bp rate rises. Not only the Fed policymakers but comments favoring higher rates from the European Central Bank (ECB) and the Bank of England (BoE) officials also weigh on the sentiment.

On the other hand, Taiwan Defence Ministry mentioned that in the past 24 hours, 12 Chinese air force planes entered Taiwan’s air defense zone

Against this backdrop, the US Dollar Index (DXY) seesaws near 102.00 after declining the most in a week, bracing for the second weekly loss by the press time.

Looking forward, the market players should pay attention to the central bankers’ comments for fresh impulse amid a light calendar and the latest emphasis on higher rates.

Also read: Forex Today: The focus remains on sentiment