- Market sentiment remains sour as strong US data, Fed talks bolster expectations of higher rates at the US central bank.
- S&P 500 Futures stays pressured near weekly low after falling the most in a month.
- US 10-year Treasury bond yields rally to a fresh high since December 30, 2022.
Risk appetite remains weak during early Friday, extending the previous day’s sour sentiment, as market players anticipate higher Fed rates amid hawkish talks from the US central bank policymakers and upbeat US data.
While portraying the mood, S&P 500 Futures dropped 0.30% to 4,086 while poking the weekly low marked the previous day by the press time. In doing so, the US stock futures remain depressed after falling the most in a month on Thursday.
Additionally, the US 10-year Treasury bond yields rise to a fresh high since December 30, 2022, up five basis points to 3.896% by the press time. On the same line, two-year US Treasury bond yields print mild gains to end Thursday around 4.64%, the highest levels since November 2022, making rounds 4.679% at the latest.
Hawkish comments from the Federal Reserve (Fed) officials and the US-China fears could be considered the latest blow to the risk profile. Recently, Cleveland Fed President Loretta Mester teased the recession woes while repeating the previous defense of the highest rates.
On the other hand, US President Joe Biden fired shots at his Chinese counterpart while conveying the expectations for a talk with the Chinese leader, during an interview with NBC News. “I think the last thing that Xi wants is to fundamentally rip the relationship with the United States and with me,” said US President Biden per Reuters.
On the same line could be the headlines suggesting the visit of the Pentagon’s Senior Official to Taiwan.
It should be noted that China’s claims of overcoming Covid woes failed to gain any major attention.
Previously, St. Louis Federal Reserve’s James Bullard bolstered the hawkish Fed bias while saying, “Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.”
US data were also supportive of the expectations suggesting higher Fed rates. That said, US Producer Price Index (PPI) for January gained major attention as it jumped the most since June with 0.7% MoM figure. Also, the US Initial Jobless Claims for the week ended on February 10, 194K versus 200K expected and 195K prior, offered extra blow to the sentiment. Alternatively, a slump in the Housing Starts for January and the Philadelphia Fed Manufacturing Survey for February seemed to have gained a little attention.
While following the data, the latest FEDWATCH read from Reuters signals that the interest rate futures market shows US rates could peak close to 5.25% by July before dropping to 5.0% by the end of the year. The same signals a higher policy pivot than the 5.10% peak conveyed by the Fed in the December meeting, which in turn hints at a few more rate hikes from the US central bank.
To sum up, the geopolitical headlines join the Fed talks to weigh on sentiment amid a light calendar.