Where we are: S&P 500 futures are trading just below the 7417.25 level, a marginal 0.08% dip on the session, while the cash index holds a slight 0.04% gain at 7360.50. This leaves us trading within the overnight range, but crucially, still below yesterday’s New York close, suggesting a cautious undertone as we await US data. The VIX remains elevated at 18.89, indicating lingering risk aversion.
What’s driving it: The primary driver remains the US yield complex, with the 2Y and 10Y yields showing significant downside pressure, down 5bp and 9bp respectively. This is providing a tailwind for equities, even as the Fed TWI index has firmed. The 10Y breakeven inflation rate is ticking up, suggesting some inflation expectations are creeping back in, which could cap further aggressive yield declines. Crude oil weakness also plays a role, easing some inflationary concerns.
- US 10Y Real Yields are falling, currently at 2.23% (-6.0bp d/d), a clear signal of easing real money market conditions that supports risk assets.
- The 2s10s spread has widened slightly to 0.31% (+1.0bp d/d), indicating a steeper curve, which is generally a positive for corporate earnings outlooks.
- Speculative positioning in S&P 500 futures shows a modestly short stance (-1.8% of OI), which, while not an extreme, could offer some fuel for a short-covering rally if sentiment shifts decisively.
NY session focus: The key event risk today is the Revised UoM Consumer Sentiment and Inflation Expectations at 10:00 ET. A print below 50.0 for sentiment, or a rise in inflation expectations, could quickly reverse any intraday gains. President Trump’s speech at 13:30 ET is a wildcard, capable of injecting significant volatility. The trade that’s working is long duration, but that’s at risk if inflation expectations re-accelerate. The pain trade for this asset today is a sharp reversal lower on disappointing consumer data or hawkish political rhetoric.