Where we are: S&P 500 futures are trading near flat this morning, hovering around 5230, as we await key US data. The overnight range has been relatively contained, with limited volatility seen in early European trading. This level sits just below the prior NY close, suggesting a cautious tone ahead of the data releases and the Fed Chair nomination vote.
What’s driving it: The market is currently torn between inflationary pressures and the continued allure of the AI rally. The rise in both 2Y and 10Y Treasury yields, up 5bp and 4bp respectively, signals building concerns about inflation, reinforced by a 2bp rise in the 10Y real yield, creating a headwind for gold. All eyes will be on the 08:30 ET Core PPI and PPI prints, which are expected to show continued inflationary pressures. Adding to the uncertainty is the impending Fed Chair Nomination vote later today at 14:30 ET.
- The 2s10s spread sits at 0.46%, indicating a modestly steepening yield curve.
- VIX has crept up to 18.38, a 6.92% increase, reflecting some apprehension.
- Speculators remain modestly short S&P 500 futures, yet the net short position is only at the 77th percentile, meaning a major squeeze is not the likeliest outcome.
NY session focus: All eyes are on the 08:30 ET PPI releases, where a higher-than-expected print will likely trigger a risk-off move, pushing yields higher and potentially testing the 5200 support level on the S&P 500. A weaker print, however, could reignite the AI-led rally, targeting 5250 and potentially new all-time highs. Watch for any headlines surrounding the 14:30 ET Fed Chair nomination vote. The trade that’s working continues to be buying dips in AI-related stocks, but it’s a high-conviction, low-delta regime. The biggest risk is a hawkish surprise stemming from the PPI data, leading to a broader market correction and unwinding of leveraged long positions. The pain trade is a decisive break above 5250, leaving shorts scrambling to cover.