Debt ceiling deal a huge relief but focus now switches to the jobs report

It's been another uninspiring session on Tuesday with traders buoyed by the deal reached on the debt ceiling but still concerned about inflation and interest rates ahead of the jobs report on Friday.

A massive step forward on the path to avoiding default

The debt ceiling distraction is almost behind us, with the House and Senate expected to vote this week on the deal that was reached between President Joe Biden and House Speaker Kevin McCarthy over the weekend.

That will put an end to fears of a US default, or at least talk of it as the outcome itself was almost certainly never going to happen. We can now get back to focusing on the actual risks facing markets and the economy this year, being inflation and interest rates, and whether optimism over the end of the tightening cycle was premature.

The jobs data on Friday is the next big test and considering how little progress has been made elsewhere to this point, you have to wonder whether the central bank has it in them to not hike again if we see another strong report. I'm sure many would like to but the fact is the economy is still displaying remarkable resilience and until that changes, not tightening may be viewed as more of a gamble.

How much sway does Saudi Arabia still have?

Oil prices are slipping on Tuesday as traders weigh up the prospects of another OPEC+ cut this weekend. Russia's Novak last week appeared to play down the prospect of another reduction shortly after traders were warned to "watch out" by the Saudi energy minister, who hinted at another "ouching" for short-sellers.

It seems Novak's words have carried more weight in the markets as traders determined that no alignment of thought will mean no deal. That may prove a little naive given the sway that Saudi Arabia holds. With prices not far from their March and May lows, we may soon see just how influential the Saudis still are.

Gold buoyed by debt ceiling agreement

Gold is almost 1% higher today, buoyed by a decline in US yields as Biden and McCarthy reached a deal to avoid a default. That deal still has a few hurdles to overcome over the next few days but this is a hugely significant step that should ensure that the unthinkable doesn't happen.

The trend remains against gold though as traders fret about the resilience of the labour markets and the stickiness of inflation. The jobs report on Friday is the next big test on that front and given what we've seen until now, it may take something particularly weak to convince Fed policymakers not to hike again in June.