S&P 500 moves higher in a climate of uncertainty surrounding the Fed and the banking system

• Markets are cautiously optimistic as policy makers rush to defend major US and European banks.
• Mixed US data and hopes of no sharp stop in monetary policy add to upbeat sentiment.
• News suggesting fears among Fed policy makers and comments by the US Treasury Secretary are fueling optimists.
• The second tier US data is the last hint before next week’s FOMC.

A volatile week seems set for a quieter end, as traders remain mostly inactive while showing mild optimism through the early hours of Friday. Thus, market participants seem to breathe a sigh of relief, as top policy makers manage to allay fears surrounding the global banking system, after the falls of banks in the US and Europe. However, doubts about the catalysts that caused such panic join measures calculated by regulators to test the mood of risk appetite.

While portraying the mood, S&P 500 futures move higher to trim intraday losses around 3.995following a bullish close in Wall Street benchmarks, while US Treasury yields fade the previous day’s corrective bounce from the monthly low.

That being said, 10-year and 2-year US Treasury yields are struggling to find clear direction around 3.56% and 4.18% respectively, as the previous day’s bounce failed to reverse the two-week downtrend.

Recent news from the global rating agency Fitch, suggesting that There are no major monetary policy challenges from the US Federal Reserve (Fed), as well as from Asia-Pacific (APAC) banks, despite falls in US and European banksseem to have favored sentiment.

The comments of the President of the Saudi National Bank, Ammar Al Khudairy, conveying Credit Suisse’s “solid” conditions joining the efforts of the major US banks for helping First Republic Bank, based in California, to avoid a liquidity crisis to favor risk appetite. Along the same lines was the news that Credit Suisse is considering borrowing up to 50 billion Swiss francs from the Swiss National Bank (SNB) to bolster liquidity, as well as Reuters citing anonymous sources to confirm that US banks are less vulnerable to the Credit Suisse debacle. Besides, the guarantees of the US Treasury Secretary, Janet Yellen, on the health of US banking and a 50 basis point rate hike by the European Central Bank (ECB), in line with expectations, also supported sentiment.

On the other hand, the concealment by the Fed of the information that initially caused the liquidity crisis in Silicon Valley Bank (SVB) joins the comments of the US Treasury Secretary in which she stated that the insurance limited to bank deposits would put risk takers to the test. In addition, a light calendar and the return of hawkish expectations around the Fed could cast doubt on sentiment.

Looking ahead, traders should watch for clues ahead of next week’s Federal Open Market Committee (FOMC) monetary policy meeting. In addition, preliminary readings of the Michigan Consumer Sentiment Index for March and the 5-Year Consumer Inflation Expectations for March will also be important for further guidance.