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

More sustained USD losses, Scotiabank
  • The markets are still cautiously optimistic, even as policymakers in the US and Europe rush to protect big banks.
  • Mixed data from the US and hopes that there won’t be a sudden change in monetary policy add to the positive mood.
  • The comments of US Treasury Secretary Yellen are a wake-up call for people who are hopeful.
  • The last clues for next week’s FOMC meeting will come from second-tier US data.

Even though traders haven’t done much so far on Friday, they seem to be getting ready for a calmer end to a volatile week. In doing so, the market players seem to breathe a sigh of relief, as major policymakers manage to calm fears about the global banking system after the failures of banks in the US and Europe. But there are questions about what caused such a panic, and regulators are taking planned steps to find out how people feel about taking risks.

As a mood indicator, the S&P 500 Futures pick up bids to cut intraday losses around 3,995, after Wall Street benchmarks ended the day on a high note. On the other hand, the US Treasury bond yields lose the corrective bounce off the monthly low from the day before.

Still, the US 10-year and 2-year Treasury bond yields aren’t sure which way to go around 3.56% and 4.18%, respectively, because the rebound from the day before didn’t stop the two-week downtrend.

Recent news stories from the global rating agency Fitch, which said that the US Federal Reserve (Fed) and Asia-Pacific (APAC) banks don’t face any major problems with their monetary policies despite the failures of US and European banks, seem to have helped the mood recently.

Ammar Al Khudairy, the head of the Saudi National Bank, may have said something along the same lines when he said that the “sound” conditions of Credit Suisse and the efforts of the big US banks to help California’s First Republic Bank avoid a liquidity crunch could help the risk-on mood. On the same line was the news that Credit Suisse wants to borrow up to CHF50 billion from the Swiss National Bank (SNB) to improve liquidity. Reuters also said that anonymous sources confirmed that US banks are less vulnerable to the Credit Suisse mess. Also, US Treasury Secretary Janet Yellen’s reassurances about the health of the US banking industry and the European Central Bank’s (ECB) 50 bps rate hike, which was in line with what was expected, helped boost the mood.

On the other hand, the Fed’s decision to hide the information that caused the liquidity crisis at the Silicon Valley Bank (SVB) is similar to what US Treasury Secretary Yellen said when she said that insurance on bank deposits would be limited to find out who took risks. A light schedule and the return of hawkish Fed bets could also throw a wrench in the mood.

Traders should keep an eye out for clues about what will happen at the Federal Open Market Committee (FOMC) meeting next week. Also, for clear directions, the preliminary readings of the US Michigan Consumer Sentiment Index for March and the UoM 5-year Consumer Inflation Expectations for the same month will be important.

Source: Team CurrencyVeda