The US Senate approved legislation to suspend the US debt ceiling through 2024, meaning that the US won’t default by next Monday. The bill now goes to President Joe Biden who will… sign it!

US yields fell and the dollar tanked on optimism that the US’ debt ceiling theater is over, and despite a big beat on ADP print.

The US dollar fell sharply yesterday, pushing the EURUSD back above the 23.6% retracement level on September to April rally. While I am not confident that we will see soft US jobs data, a softer-than-expected figure could encourage a further recovery.

Optimism regarding the US debt ceiling deal, and the falling yields sent the S&P500 1% up yesterday, Nasdaq jumped around 1.30%. The S&P500 is up by more than 10% since the beginning of the year, but without the Big Tech’s contribution, the index would be up by just around 1.5% and would be much more vulnerable!

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The US dollar gained, and the euro fell yesterday, after data from the Eurozone countries showed a faster-than-expected easing in inflation, while the job openings data from the US hinted, yet again, at further resilience in the US jobs market.

As a result of softer European inflation and stronger US job openings data, the EURUSD fell as low as 1.0635 yesterday, and the yield spread between the German and US 10-year bonds fell to the lowest levels since the end of February. Softer euro weighs on European stocks.

On the political front, the US House cleared the debt limit bill despite critics both sides. With the bill now headed to the Senate, it’s almost certain that it will get approved before the June 5th deadline.

One would’ve expected a relief rally on the back of the news that the debt ceiling crisis is almost over, but the stock markets gave a muted reaction. The more than 5.5% slump in Nvidia shares outweighed the debt ceiling optimism.

In China, the Caixin manufacturing index printed a number above 50 for May, in the expansion zone, in contradiction with the official PMI which unexpected showed a faster contraction the same month earlier this week. The latter may have helped halting bleeding in crude oil and boosted Hang Seng in Hong Kong, but bears remain in charge of both markets.

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The US 2-year yield fell sharply, while the S&P500 ended flat after hitting a fresh high since last summer on optimism that the US will finally agree to raise the debt ceiling.

The House will vote today to decide whether the debt limit bill gets approved at time to get a Senate approval by next Monday deadline.
But the problem is that at least 20 conservative Republicans of the House rejected Kevin McCarthy’s compromise on debt ceiling, saying that spending cuts are not enough.

Any misstep at today’s House vote could send the US yields higher and stocks lower.

So far, there has been a widening gap between the way the stock and bond markets priced the threat of a US government default. And even the fact that the Federal Reserve’s (Fed) hawkish stance has a material impact on yields’ upside trajectory since the bank-stress dip, stock markets kept on climbing. But Nasdaq stocks are rate sensitive, and cannot be rate-hike proof if the Fed continues hiking the rates.

In energy, US crude tanked nearly 5% yesterday, and tipped a toe below the $69 pb mark on worries that Russia may not follow OPEC’s output cuts, in which case the internal conflict may prevent the cartel from reducing supply in a way to give a jolt to oil prices.

Elsewhere, the Chinese manufacturing PMI showed that contraction in activity accelerated in May instead of stepping back to the expansion zone. The faster Chinese manufacturing contraction also weighs on the sentiment this morning.

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The holiday shortened trading week starts tense but on an optimistic note as US President Joe Biden and House Speaker Kevin McCarthy finally reached an agreement to raise the debt ceiling. The deal must get approval in a congressional vote on Wednesday.

Presently, it feels like investors are confident that the US debt ceiling will be raised. The kneejerk reaction to a debt ceiling deal will be positive but gains could remain short-lived.

The latest economic data suggested last Friday that US inflation didn’t ease as much as analysts expected in April.

The data boosted odds that the Fed would opt for one last hike at next month’s policy meeting. Activity on Fed funds futures now assesses more chance for a 25bp hike in June, than a no hike.

Prospects of lower market liquidity amid the end of the US debt ceiling crisis, and hawkish Fed expectations are both reasons to turn bearish on stocks.

But the S&P500 closed last week above the 4200 level, while Nasdaq 100 jumped more than 2.50% and hit the highest levels since April 2022 though the US 2-yer yield rose for the 12th straight session.

Rising US yields continue giving a decent support to the US dollar, the USDJPY consolidates above the 140 mark, as the EURUSD tests 1.07 to the downside.

Gold is down to the 100-DMA, while oil pushes higher on poor conviction into June 3-4 OPEC meeting.

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Nvidia’s impressive Q1 results and the $11bn revenue forecast for the second quarter blew investors’ minds away.

Major US stock indices gained yesterday. The S&P500 added 0.88%, while Nasdaq 100 jumped almost 2.50%, thanks to a 24% rally in Nvidia which rocketed to a fresh-all-time high of almost $395 a share. Nvidia’s PE spiked near 220. Is this a bubble?

While the technology stocks were euphoric yesterday, the rest of the sectors were much less appetizing. US debt ceiling talks continued, there was again some optimism on the headlines, but no deal has been reached and the clock is ticking louder into the June1st deadline.

In Europe, Germany became the first big nation to step into recession since the pandemic. News sent the EURUSD to a month low yesterday.

US crude fell more than 3% yesterday, after hitting the 50-DMA the day before on Saudi Prince Abdulazziz bin Salman’s threat to sellers. Energy bulls found no solid ground to extend the rally above the 50-DMA, and the price of a barrel fell all the way down to $70.80 pb.

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