January 12, 2023

S&P 500 Futures portray pre-data anxiety as markets await US inflation, bond yields remain depressed

Market sentiment remains dicey amid cautious mood ahead of the key data.
S&P 500 Futures struggle to track Wall Street’s gains at one-month high.
US 10-year, two-year Treasury bond yields extend previous day’s losses.
Expectations of softer US inflation keep optimists hopeful even as Fed policymakers defend rate hikes.

Bulls and bears jostle in the markets ahead of Thursday’s all-important US inflation data. Adding strength to the market’s indecision could be the recently mixed China Consumer Price Index (CPI) and Producer Price Index (PPI) figures for December, as well as a light calendar elsewhere.

While portraying the mood, S&P 500 Futures struggled for clear directions at the monthly high of 3,991 whereas the US 10-year Treasury yields dropped two basis points (bps) to 3.53% by the press time. It’s worth noting that the US two-year bond coupons also traced the 10-year counterpart and print mild losses at around 4.21% at the latest.

That said, China’s headline CPI matched 1.8% YoY forecasts versus 1.6% prior whereas the Producer Price Index (PPI) marked -0.7% figures compared to -1.3% previous readings and -0.1% market consensus.

Elsewhere, Federal Reserve Bank of Boston President Susan Collins backed the smaller rate increases while stating that she leans at this stage to a 25 bps hike. The policy, however, also mentioned that it is very data-dependent. Earlier in the week, Fed Chair Jerome Powell hesitated in conveying monetary policy outlook and raised hopes of a policy pivot.

On a different page, China’s total reopening and early signals of heavy holiday shopping join the chatters that the People’s Bank of China (PBOC) will adhere to rate cuts in 2023 to spread the Beijing-inspired optimism.

Amid these plays, the US Dollar Index (DXY) remains pressured around 103.10, down 0.13% intraday, whereas WTI crude oil remains indecisive around $77.70 after rising the most in two months the previous day.

Looking forward, market players may witness lackluster moves ahead of the US inflation data. However, expectations of a softer outcome and recently mixed comments from the Fed policymakers raise fears of a wild move in case the actual outcome disappoints.

Also read: US December CPI Preview: EUR/USD and USD/JPY are pairs to watch

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