General Market Analysis 29/05/23

Markets Surge on Debt Deal – Nasdaq up 2.2%

Asian markets are set to open on the front foot today after news out of Washington that a deal on the debt issue has been agreed in principle. President Biden and House Speaker Kevin McCarthy have advised that they have come to an agreement which will see the debt ceiling raised and avoid a default which had been an increasing concern for investors. US markets had finished the week on a positive note on Friday as news of a possible deal had fed through to the markets, the Dow closed up 1%, the S&P up 1.3% and the Nasdaq had surged 2.19% on the day. The dollar is still sitting close to recent highs against most of the majors and we should see some stabilization in the US treasury market now a deal has been struck.

Investor focus to Move to Fed and Data

With the deal on the debt issue looking like a near certainty in Washington, investors are likely to turn their attention to other factors affecting the market. As usual, front, and center are Fed expectations and the data that influences them. The Core PCE Price Index came out stronger than expected on Friday and this has only increased rate hike expectations, as the market is aware this is a favoured indicator for the FOMC. The market is now pricing in a near 70% chance that the Fed will hike rates again at its June meeting – all this could lead to a short-lived relief rally for stock markets and risk assets this week as investors look to price in other factors.

Liquidity Concerns for Today’s Trading Day

Traders are concerned that liquidity could be an issue across the sessions today as fresh news hits holiday-influenced trading conditions. The majority of Asia is in as usual but once we hit the European time zone the normal increase in liquidity is unlikely to occur due to holidays across the continent and this flows into the North American time zone with the US enjoying the Memorial Day weekend. Fortunately, there is little in the way of major data due out but with news coming out of Washington thick and fast expect some moves to go further and faster than they would normally do.