SPX500 Contains its Slide, Helped by Fed Pushback & Debt Limit Bill Clearing First Hurdle
SPX500 Analysis
Markets had come to expect another 25 basis points rate increase by the Fed in June, in a hawkish shift that peaked after last week's hot PCE inflation report, which showed an increase in both core and headline measures.
On Wednesday however, two Fed officials argued in favor of skipping a hike in this month's upcoming meeting. Both Mr Harker and Mr Jefferson said they would prefer to stay in the sidelines this time, but stressed that this is not a pause and further tightening may be warranted.
These dovish remarks caused a reversal in expectations around the central bank's next move. CME's FedWatch Tool now assigns the highest probability to rates staying at current 5.25% this month, but continues to price in another hike. [1]
The debt ceiling agreement meanwhile, cleared the first hurdle, since the Fiscal Responsibility Act of 2023 (H.R.3746) passed the House with 314-117 majority, but needs be approved by the Senate as well. [2]
SPX500 had a mixed month, despite the new 2023 highs and trades on the back foot this week, creating risk for a breach of the EMA200. Daily closes below it would pause the upside bias and expose it to 4.048. The downside seems well protected however, with a thick daily Ichimoukou cloud.
The index finds support by the overnight dovish Fed commentary and the debt ceiling bill approval by the House. Above the EMA200 bulls are in control, with the ability to set new 2023 highs (4,237), although we are cautious at this stage for moves past 4,326.
The trajectory of the SPX500 will likely be determined by Friday's jobs data. The labor market is very tight and another strong report would make a pause harder, but a weak one could allow officials to skip a rate hike. Moreover, investors will be awaiting the Senate vote on the debt ceiling bill, as the June 5 estimated deadline looms [3]. Successful outcome would create optimism, but could also enable the Fed to keep a more aggressive stance.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 01 Jun 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 01 Jun 2023 https://www.congress.gov/bill/118th-congress/house-bill/3746 | |
| Retrieved 04 Oct 2023 https://home.treasury.gov/system/files/136/Debt-Limit-Letter-to-Congress-Members-20230526-McCarthy.pdf |
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