Where we are: S&P 500 futures are trading flat to slightly lower this morning, consolidating after a choppy session on Thursday where the index managed to close higher. We’re currently seeing futures hover around the 5,450 area, a level that represents a slight pullback from Thursday’s close but remains well within the recent trading range. The VIX has ticked up, reflecting a cautious undertone as we head into the New York open, with US 08:30 ET data yet to print.
What’s driving it: The primary driver remains the US yield complex, with the 2-year yield showing a significant 15bp jump on Wednesday, and the 10-year yield up 6bp. This rise, coupled with a 9bp increase in real yields, is a clear headwind for equities, particularly growth-oriented sectors. While the headline news of an interim US-Iran deal and the reopening of the Strait of Hormuz provided a brief risk-on sentiment boost on Thursday, the underlying hawkish lean from the Fed, with half of officials signaling a potential rate hike this year, is now reasserting itself. This domestic yield pressure is the dominant theme, overshadowing any fleeting geopolitical relief.
- US 2Y Yield: 4.2% [+15.0bp d/d]
- US 10Y Real Yield (TIPS): 2.23% [+9.0bp d/d]
- Net non-commercial S&P 500 futures: -194,554 contracts (crowded short, squeeze risk on positive surprise)
NY session focus: The 08:30 ET data print will be the immediate catalyst for price action. Given the recent hawkish Fed commentary and rising yields, any data that suggests sticky inflation or a resilient US economy could exacerbate the downside pressure on equities. We’ll be watching the 5,430 level on the S&P 500 futures as immediate support, with a break below that opening the door to 5,400. Conversely, a surprisingly benign data set could see a short-covering rally, potentially pushing us back towards Thursday’s highs around 5,475. The pain trade here is a sustained move higher in yields, forcing a capitulation of those net short speculative positions.