S&P500 Futures ignore Wall Street’s gains, yields dribble ahead of Fed’s favorite inflation

Risk profile remains blurry during early Friday as market players eye the Federal Reserve’s preferred inflation gauge after witnessing mixed clues the previous day. Adding strength to the inaction are the contrasting plays of the First Republic Bank-induced fears and optimism spread via upbeat earnings from the global technology giants.

While portraying the mood, the S&P500 Futures remain directionless around mid-4,100s after rising the most in 1.5 months the previous day, as well as snapping a two-day downtrend. It’s worth noting that the US Treasury bond yields remain lackluster following a notable recovery in the 10-year and two-year bond coupons in the last two days.

Upbeat earnings from Meta Platforms jostle with Amazon’s recession warning and upbeat results to entertain equity bulls on Wall Street the previous day. Alternatively, US banking fallout fears weighed on the sentiment amid reports that the First Republic Bank (FRB) plans to sell half its loan book to fill a $100B deposit flight gap.

Elsewhere, upbeat inflation signals from the United States data ahead of the next week’s Federal Open Market Committee (FOMC) monetary policy meeting initially allowed the US Dollar and yields to remain firmer before the greenback’s retreat.

That said, the first readings of the US Gross Domestic Product (GDP) for the first quarter (Q1) of 2023, also known as Advance readings, marked mixed outcomes. That said, the headline US GDP Annualized eased to 1.1% from 2.0% expected and 2.6% prior but the GDP Price Index inched higher to 4.0% on an annualized basis from 3.9% prior and 3.8% market consensus. Further, the Personal Consumption Expenditure (PCE) Prices for Q1 rallied to 4.2% from 3.7% in previous readouts whereas the Core PCE figures also crossed 4.8% market forecasts and 4.4% prior with 4.9% mark for the said period. It should be noted that a slump in the weekly Initial Jobless Claims also allowed the US Dollar to remain firmer.

It should be observed that the likely deadlock over the US debt ceiling talks, as most policymakers have contrasting views, also prods the optimists during the pre-data anxiety. Recently, House Speak Kevin McCarthy said, “I won't pass a clean debt-limit increase.”

Amid these plays, prices of the Gold and WTI crude oil struggle for clear directions and tease the bears whereas the major currency pairs, ex USD/JPY, remain sluggish while waiting for the key data.

With this, the Fed’s preferred inflation data, namely the US Core Personal Consumption Expenditure (PCE) Price Index for March, expected to ease to 4.5% YoY versus 4.6% prior, becomes crucial for market players to watch. Also important are the first readings of the Eurozone and German Q1 GDP.

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