• Market sentiment remains dicey ahead of the key data/events.
  • S&P 500 Futures stay mildly bid around monthly high, US Treasury bond yields hold lower ground.
  • ECB versus Fed drama, lack of clarity from earnings report and a light calendar trouble traders of late.
  • US Q4 GDP, PCE Price Index will be crucial for directions ahead of next week’s FOMC.

Risk profile remains lackluster during early Thursday as market players the key US data to confirm recent dovish bias on the Federal Reserve (Fed).

Adding strength to the market’s inaction could be the lack of major data/events, as well as the European Central Bank (ECB) policymakers’ one-week silence ahead of the next Thursday’s monetary policy meeting. Furthermore, the Lunar New Year (LNY) holidays in China and an off in Australia also challenge the momentum traders.

While portraying the mood, the S&P 500 Futures grind near 4,035, staying mildly bid near the monthly high marked on Monday. That said, the US 10-year Treasury bond yields remain pressured during the fourth weekly downtrend in a row, around 3.44% by the press time. It’s worth observing that the two-year US Treasury bond coupons also print a four-week south-run but are comparatively more sluggish near 4.13% at the latest.

On Wednesday, Tesla beats market forecasts but Microsoft’s downbeat outlook probed equity buyers on Wall Street.

Elsewhere, receding hawkish bets on the Fed’s 0.50% rate hike in the next week’s Federal Open Market Committee (FOMC) weighs on the US Treasury bond yields, as well as the US Dollar. “Traders broadly expect the Fed to increase rates by 25 basis points (bps) next Wednesday, a step down from a 50 bps increase in December,” said Reuters.

Other than the dovish Fed concerns, the hawkish comments from the European Central Bank (ECB), as well as the upbeat German data also weighed on the US Dollar. On Wednesday, Germany’s IFO Business Climate Index matched 90.2 forecasts for January versus 88.6 prior but the Current Assessment eased from 94.4 to 94.1, versus 95.0 expected. Further, the IFO Expectations for the said month also came in higher-than-consensus 85.0 while rising to 86.4, compared to 83.2 in previous readings.

That said, ECB Governing Council member Gabriel Makhlouf became the last policymaker from the bloc’s central bank to fire the hawkish shot, suggesting a 50 bps rate hike, ahead of the one-week blackout pre-ECB. "We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions," said ECB’s Makhlouf. Makhlouf further added that they need to increase rates again at the March meeting.

Recently, the Bank of Japan's (BOJ) Summary of Opinions defends easy money policy but failed to entertain traders amid cautious mood ahead of the all-important Advance US Q4 GDP, expected to print annualized growth of 2.6% versus 3.2% prior. Also important to watch will be the US Durable Goods Orders for December and the Q4 Personal Consumption Expenditure (PCE) data as Fed hawks may cheer hints of more inflation and sustained growth.

Also read: US Gross Domestic Product Preview: Three reasons to expect a US Dollar-boosting outcome

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