U.S. stock index futures edged higher on Tuesday, ahead of Federal Reserve Chair Jerome Powell's testimony before Congress that could shed more light on the central bank's interest rate hike plans.
"The key focus will be on how Powell sees the U.S. labor market, and whether the FOMC think that economic conditions have improved or deteriorated since the last Fed meeting," Michael Hewson, chief market analyst at CMC Markets, said in a note.
"Markets will also be paying attention to whether Powell continues to peddle the same narrative of disinflation ... If he acknowledges that inflation could be much stickier than the Fed thought over a month ago, that could prompt a pullback in U.S. equity markets." The yield on two-year Treasury notes , which best reflects short-term rate expectations, hit its highest level since 2007 at 4.94% last week and has since been hovering below that level.
Rising bond yields tend to weigh on equity valuations, particularly those of growth and technology stocks, as higher rates reduce the value of future cash flows. Recent economic data and comments from Fed policymakers have prompted traders to reassess the path of rates, with money market futures pricing in a 28% chance that the central bank will increase rates by a bigger 50 basis points in March, according to CME Group's Fedwatch tool.Investors also await data later this week that is expected to show nonfarm payrolls increased by 200,000 in February, compared with the much stronger-than-expected 517,000 jobs reported in January.
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