- US Treasury yields pause recent declines, S&P 500 Futures print mild losses.
- US inflation matched hawkish forecasts but market players sold the facts.
- Latest Fedspeak bolsters rate hike concerns ahead of blackout period, virus, geopolitics also test sentiment.
- US PPI, comments from Fed policymakers and second-tier job numbers eyed for fresh impulse.
After portraying a surprise positive reaction to the 40-year high US inflation data, risk appetite wanes during early Thursday. While tracking the catalysts, the recently hawkish comments from the Fed policymakers and geopolitical headlines, coupled with the virus updates, could be found guilty.
US CPI jumped to the highest levels since 1982 while matching 7.0% YoY forecasts, up from 6.8% previous readouts. The monthly figures rose to 0.5% versus 0.4% expected but softened below 0.8% prior.
Following that US inflation data, Federal Reserve Bank of St. Louis President James Bullard said, per Wall Street Journal (WSJ), “Four rate hikes in 2022 now appear to be on the table and, in the face of high inflation, a rate hike in March seems likely.” On the same line were comments from the member of the Fed Board of Governors and incoming Vice Chairman of the FOMC Lael Brainard who said, “Inflation control is Fed’s most important task. Additionally, President and CEO of the Federal Reserve Bank of San Francisco Mary Daly signaled a rate hike as early as March.
Elsewhere, “Deputy US Trade Representative (USTR) Jayme White expressed Washington’s ongoing concern about Canada’s proposed digital services tax in talks on Wednesday with Canada’s deputy trade minister, David Morrison,” USTR said in a statement per Reuters.
Furthermore, US Ambassador to the United Nations (UN) Linda Thomas-Greenfield tweeted the proposal to levy extra sanctions on North Korea for the latest slew of missile tests.
Amid these plays, US 10-year Treasury yields add 2.5 basis points (bps) to regain 1.755 level whereas the 2-year counterpart rises 1.6 bps to 0.923% by the press time. Further, S&P 500 Futures drop 0.20% intraday after the Wall Street benchmarks closed with mild gains.
Moving on, the Fed policymakers’ speeches will be crucial for near-term market direction as they approach the blackout period before the monetary policy meeting, during January 25-26. Also important will be the US Producer Price Index (PPI) for December and weekly jobless claims. Should the incoming catalysts keep flashing challenges to market sentiment and support Fed’s faster rate hikes starting from March 2022, US Treasury yields may extend the latest rebound, underpinning the USD recovery and challenging the commodities as well as Antipodeans.