S&P 500 Futures, US T-bond yields portray anxiety over Ukraine peace talks

• Global markets fade the previous day’s risk-on mood ahead of the key events.
• Russia-Ukraine diplomats may discuss ceasefire during likely peace talks on Thursday.
• Probabilities of 0.50% rate-hike in March Fed meeting rallied to 90% versus below 5.0% earlier.
• Powell’s testimony 2.0, US data may entertain traders but geopolitics are the key.

Market players turn cautious during early Thursday, having portrayed a strong risk-on mood the previous day. The latest sentiment could be linked to a lack of major data/events and mixed concerns over the key risk catalysts.

While portraying the mood, S&P 500 Futures print mild losses whereas the US 10-year Treasury yields also drop 1.2 basis points (bps) to 1.85% by the press time. Its worth noting that the benchmark T-bond coupons snapped a two-day downtrend and Wall Street also printed notable gains the previous day.

Among the key risk catalysts are fears of another disappointment from the peace talks between Ukraine and Russia. A Russian negotiator was quoted to share the news of a probable round of diplomatic talks on Thursday. On the same line, Interfax also mentioned, “A potential ceasefire will be discussed in upcoming talks with the Ukrainian delegation.”

On other hand, a jump in the probabilities of a 0.50% rate hike in the March Fed meeting, per CME’s FedWatch Tool, also challenges the market’s optimism. The stated tool from the CME signals around 90% probabilities for a 0.50% increase in the benchmark rate in March versus nearly 2% odds favoring the same decision earlier. The latest jump in the market’s hopes of the hawkish Fed could be linked to Fed Chair Powell’s bi-annual hearing of Monetary Policy Report in front of the House Financial Services Committee.

Read: Powell Quick Analysis: US economy is on fire, war could impact policy both ways, dollar to rise

Elsewhere, China’s terming of Moscow’s action in Ukraine as “war” versus the previous terminology of a “special operation”, per Bloomberg as it quoted China’s Foreign Minister Wang Yi, also tested market sentiment.

Furthermore, the global rating agency Fitch downgrades Russia’s Long-Term Foreign Currency Issuer Default Rating (IDR) to 'B' from 'BBB' whereas US President Joe Biden said he is “looking at ways” to cut Russian oil consumption by the US.

Moving ahead, a slew of US data and a second version of Fed Chair Powell’s testimony will entertain traders ahead of Friday’s key US jobs report. However, major attention will be given to the Russia-Ukraine headlines and odds of the Fed’s rate-hike trajectory for fresh impulse.

Read: Forex Today: Markets recovered their optimism, but will it last?