- Market sentiment improves as US Republican-controlled House of Representatives support the measures to avoid government default.
- Easing fears of hawkish Fed actions, mixed US data also allow optimists to return to the table.
- S&P500 Futures snap three-day downtrend, yields seesaw at weekly low.
- US ADP Employment Change, PMI data in focus ahead of Senate voting on debt-ceiling deal, Friday’s NFP.
Risk appetite solidifies on early Thursday as the US policymakers manage to inch closer to avoiding the ‘catastrophic’ default. Adding strength to the cautious optimism are the recently mixed US data and receding hawkish hopes from the Federal Reserve (Fed). It’s worth noting, however, that the anxiety ahead of the top-tier US employment and activity data, as well as before the Senate voting on the bill to extend the US debt-ceiling, seem to prod the optimists of late.
While portraying the mood, S&P500 Futures print the first daily gains in four while approaching the 4,200 round figure, up 0.05% intraday near 4,194 at the latest. On the same line, the US 10-year and two-year Treasury bond yields also stabilize around 3.65% and 4.42% after refreshing the weekly low during the previous fall.
“The Republican-controlled House voted 314-117 to send the legislation to the Senate, which must enact the measure and get it to President Joe Biden's desk before a Monday deadline, when the federal government is expected to run out of money to pay its bills,” said Reuters.
On the other hand, Wall Street Journal’s (WSJ) Nick Timiraos cites multiple Fed speakers and recently mixed US data to suggest that the Federal Open Market Committee (FOMC) is likely to hold interest rates steady in June.
That said, US JOLTS Job Openings rose to 10.103M in April versus 9.375M expected and 9.745M prior whereas Chicago Purchasing Managers’ Index dropped to 40.4 for May from 48.6 prior and 47.0 market forecasts. Earlier in the week, the US consumer sentiment gauge improved but the details were unimpressive.
Among the key Fed speakers was Governor Michelle Bowman who cited recovery in the residential real estate market while also adding, “The leveling out of home prices will have implications for the Fed's fight to lower inflation,” per Reuters. Before him, Cleveland Fed President Loretta Mester suggested that the Fed must go for a rate hike in June. Additionally, Fed Governor and vice chair nominee Philip Jefferson said that skipping a rate hike would allow the Fed "to see more data before making decisions about the extent of additional policy firming,” per Reuters. On the same line was Federal Reserve Bank of Philadelphia President Patrick Harker who also said on Wednesday that he is inclined to support a "skip" in interest rate hikes at the central bank's next meeting in June.
Looking forward, the market players will keep their eyes on the Senate’s voting on the debt ceiling bills and the US ADP Employment Change, ISM Manufacturing PMI and S&P Global PMIs for May for clear directions.
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