S&P 500 Futures struggle to track Wall Street’s gain amid volatile yields, US PCE Inflation eyed

Financial markets turn volatile on early Friday as mixed geopolitical headlines join traders’ anticipation of the Federal Reserve (Fed) and Bank of Japan (BoJ) moves.

The market sentiment improved late Thursday and allowed Wall Street to close on a positive side. However, the S&P 500 Futures recently failed to extend the recovery moves from the monthly low by retreating to 4,013, down 0.13% intraday at the latest.

It should be noted that the US Treasury bond yields also probe the two-day pullback from the highest levels since November amid hawkish Fed bets and chatters that three 0.25% rate hikes are already priced in. That said, the US 10-year Treasury bond yields seesaw around 3.875%, making it less active on the day, whereas the US two-year bond coupons stay inactive near 4.69% by the press time.

That said, the latest headlines conveying comments from the Japanese government's nominee for the new central bank governor, Kazuo Ueda, seem to offer enough volatility to the yields. The reason could be linked to the incoming Bank of Japan (BoJ) Governor’s statements which initially defended the easy money policy before showing readiness for tightening in case inflation pressure accelerates.

On the other hand, China’s push for a cease-fire in the Ukraine-Russia war, as well as the signing of a deal to supply combat drones, seem to flash mixed geopolitical signals. On the same line, the US Senators’ push to halt Chinese carriers overflying Russia on US flights seems to renew the market fears.

Alternatively, US Treasury Secretary Janet Yellen signaled that the US will resume discussions with China on economic issues 'at an appropriate time' whereas China’s Commerce Ministry urged the US to create good conditions for trade with China. The news managed to trigger cautious optimism during the late hours of the previous day.

On the same line were statements from China’s commerce ministry spokesperson who said, the recovery momentum in the country’s consumer market was strong in January while also adding, “The government will take more measures to revive and expand consumption.”

It should be noted that the strong US data previously underpinned the hawkish Fed bets and propelled the US Dollar Index (DXY) to a fresh seven-week high, down 0.06% near 105.54 at the latest, which in turn probed the Gold sellers. However, Oil prices recovered from a three-week low.

Thursday’s second reading of the US Gross Domestic Product Annualized, better known as Real GDP, eased to 2.7% for the fourth quarter (Q4) versus 2.9% first forecasts. However, the Personal Consumption Expenditure (PCE) Price and Core PCE for the said period rose to 3.7% and 4.3% QoQ versus 3.2% and 3.9% respective first estimations. Additionally, the Chicago Fed National Activity Index improved to 0.23 in January from -0.46 (revised), versus 0.03 analysts’ estimates. On the same line, Initial Jobless Claims also eased to 192K for the week ended on February 17 from 195K (revised) prior, compared to 200K expected.

Moving ahead, the US Personal Consumption Expenditures (PCE) Price Index data for January will be crucial for the markets. The PCE Price Index is expected to have risen by 4.9% YoY in January, versus 5% prior. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, is likely eased to 4.3% YoY, compared 4.4% prior.

Also read: US PCE Inflation Preview: Can the US Dollar turn bullish for good?