S&P 500 Futures, US Treasury bond yields dribble as Fed-linked caution pokes receding banking sector fears

More sustained USD losses, Scotiabank
  • Despite a slow start to the crucial week, market mood is still unfavourable.
  • S&P 500 Futures swing back and forth between a two-day uptrend and a two-week high.
  • The yields on US 10-year and two-year Treasury bonds have decreased from their six-month low.
  • Concern over the Fed’s next move clashes with risk-positive banking sector stories to constrain movements on a crucial day.

The market’s jitters ahead of Wednesday morning’s crucial Federal Open Market Committee (FOMC) monetary policy meeting are well captured by international traders. In doing so, the market participants find it difficult to defend the most recent stories stating that anxieties in the banking industry are subsiding.

S&P 500 Futures, which reflect the mood, remain gloomy at 4,040 despite a positive Wall Street ending, while benchmark US Treasury note yields are struggling to sustain their two-day recovery from their lowest levels since September 2022. Notwithstanding this, the US 10-year and 2-year Treasury bond rates are currently down one basis point, at 3.60% and 4.18%, respectively.

This time, the pre-Fed caution is especially crucial because American politicians are working hard to quell concerns over the 2008 financial disaster. The lately conflicting US statistics and the market’s aggressive predictions of a 0.25% rate hike are two more factors that stand out in today’s FOMC. Nonetheless, it should be emphasised that the Fed’s dot plot developments and Chairman Powell’s speech are receiving the majority of attention.

After an initial round of upbeat news that supported the US Treasury bond yield and Wall Street, traders see mixed headlines late Tuesday. One of these is the report that US politicians are debating how to circumvent Congress in order to defend the banks, as well as rumours that the First Republic Bank is looking to the government for assistance and prodding investors.

When she commented, “Treasury, Fed, and FDIC efforts decreased risk of subsequent bank failures that would have placed losses on deposit insurance fund,” US Treasury Secretary Janet Yellen’s remarks at the time attracted a lot of attention. A group of banks sought the move earlier on Tuesday, arguing that it was necessary to avert a potential financial disaster. Bloomberg carried the news that “US officials are investigating how they can temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all depositors.” Together with American policymakers, Martins Kazaks of the European Central Bank (ECB) and Dr. Marcel Rohner, the head of Switzerland’s banking association, both attempted to persuade the markets that their respective banking systems weren’t in danger of collapsing.

On a different page, Reuters reported that President Xi Jinping of China’s visit to Russia could pose geopolitical concerns to the world economy, which should have prompted a study into the risk-on stance. Also, the unified statement accusing the West of undermining global stability and invading the Asia-Pacific area is quoted in the press.

Going ahead, market participants can be entertained by UK inflation data and ECB President Christine Lagarde’s speech prior to the important Fed pronouncements.