SPX500_m awaits jobs data after US fiscal drama

Stock markets are finding some relief after the US debt limit deal was approved by the House, with the Senate’s vote now set to be a formality.

Still, risk appetite appears to be muted after the mixed signals this week surrounding China’s recovery, as well as the dwindling prospects of Fed rate cuts later this year.

 

US stocks fell on the last trading day of May as investors shifted their bets on the Fed raising rates due to a mixed picture of fresh, strong labour market data and comments from FOMC officials.

The blue-chip S&P 500 lost 0.61% while the tech-laden Nasdaq 100 finished 0.7% lower.

Cyclicals and a small number of tech companies massively outperformed defensives in May despite equities in general being flat on the month.

 

Technically, it was notable that the benchmark S&P 500 couldn’t close above the widely watched 4,200 zone, even though it is attempting to reclaim that psychologically-important handle at the time of writing.

This level has been a ceiling and resistance for prices over the past several months of this year.

The early February top at 4,197.3 has capped index gains but Tuesday’s close above this critical area suggested that the bulls could be in the ascendancy with a strong weekly close eyeing up 4,300.

But the fall back below yesterday says it could slow gains once more. The 100-week simple moving average currently sits at 4,199.6 and reinforces the 4,200-pivot zone.

 

What’s next for the SPX500_m?

This Friday’s NFP report is set to hold sway over the Fed’s next interest rate moves.

If hiring momentum in the US jobs market softens meaningfully that should allow the Fed to pause its aggressive rate hikes.

Such hopes should carve out more breathing space for the likes of US equities.

However, risk assets are likely to face a tough time sustaining a relief rally until US interest rates have well and truly reached their peak, despite recent Fed speak suggesting a June pause.

Markets remain cognizant that a recession still looms large on the horizon, with such prospects likely to cap the upside in stocks in the interim.