- Market sentiment remains mildly positive amid upbeat earnings from tech majors, progress on US debt ceiling issue.
- First Republican Bank slumps another 20.0% and propels banking fears.
- S&P 500 Futures rebound from one-month low, snaps two-day downtrend.
- US Treasury bond yields turn dicey ahead of first reading of US Q1 GDP.
Risk profile improves during early Thursday as positive developments surrounding the US debt ceiling evolve. Adding strength to the cautious optimism is the upbeat performance of the technology giants and hopes of a pause in the major central bank’s rate hike trajectory.
With this, S&P 500 Futures print mild gains of 0.18% around 4,083 whereas the US Treasury bond yields remain directionless by the press time. It’s worth noting that Wall Street closed mixed.
Upbeat earnings from Microsoft and Google’s parent Alphabet Inc. allowed Nasdaq to remain firmer. However, the escalating fears from the First Republic Bank (FRB), due to another 20% share price fall on Wednesday following a 50% slump the previous day, weigh on the sentiment.
Elsewhere, the US House of Representatives recently passed a bill that enables the government to negotiate the extension of the debt ceiling. However, the policymakers are likely to remain at loggerheads amid the wide difference between the Republicans’ and Democrats’ demands.
It’s worth mentioning that the latest tax receipt numbers from the US allow Goldman Sachs (GS) to expect that the US Treasury Department can avoid the risk of a federal payments default till late July.
Above all, hopes of policy pivot at major central banks and mixed US data seem to keep the traders optimistic but the anxiety ahead of the key US first quarter (Q1) Gross Domestic Product (GDP), expected to ease to 2.0% on an annualized basis versus 2.6% prior, prod the positivity. That said, the US Durable Goods Orders rose but couldn’t overcome the fishy details of Consumer Confidence released previously.
Amid these plays, the US Dollar Index (DXY) struggles near the lowest levels in two weeks while commodities and Antipodeans are mildly bid of late.
Moving on, the US GDP numbers will be crucial for market players to watch for clear directions amid recession woes. Following that, Friday’s Core PCE Price Index details, the Fed’s preferred inflation gauge, could entertain traders ahead of the next week’s Federal Open Market Committee (FOMC).
Also read: S&P 500 bears in control following break of structure amid banking sector woes
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The S&P 500 futures have seen some stabilization in yield this week as investors await the release of US Gross Domestic Product (GDP) figures, as well as earnings from First Republic Bank and tech shares.
Equity markets were cautious ahead of the announcement of US GDP figures for the first quarter of 2021. Investors were worried that the figures could be lower than expected, as the global economic recovery is still in its early stages. There were also concerns about rising inflation, as the labor market continues to strengthen.
At the same time, yields on 10-year Treasury notes have been stabilizing after the steep sell-off in late March. The benchmark 10-year yield stood at 1.64 percent on Wednesday morning, leaving it virtually unchanged for the week.
Investors have also been keeping an eye on corporate earnings this week. First Republic Bank revealed an impressive set of earnings figures that beat expectations and sent the stock price up by nearly 4 percent. Meanwhile, tech shares have been seeing a lot of attention as the sector continues to power the US recovery.
The upcoming US GDP figures will be key in determining the direction of the markets in the near future. If the figures come in better than expected, it could catalyze a further rally in equities and further stabilize yields with the 10-year yield potentially breaching the 2 percent mark. However, if the figures come in worse than expected then it could spark a sell-off in equities and a sell-off in yields.
Overall, the markets have been stabilizing ahead of the US GDP release, as investors await further economic data from First Republic Bank and tech shares. Whether the figures beat or miss expectations remains to be seen, although it appears that investors are cautiously optimistic about the economic recovery.