Further Fed ‘Rate Pause’ Comments

Yesterday was an important day for stocks with the passing of a deal to suspend the US debt ceiling until after the next election alongside further dovish Fed comments. Fed’s Harker voiced his support for a pause at the next meeting, echoing comments made earlier in the week by Fed’s Jefferson. Harker said it was time to “hit the stop button” for at least one meeting and “see how it goes”, alluding to the scenario Jefferson described whereby the Fed might pause rate hikes for now but not necessarily end its tightening campaign. Market pricing for a pause at the upcoming June meeting has now moved above 70% from around 20% at the start of last week.

Debt Default Avoided

In the Senate, the debt ceiling deal was finally passed last night, meaning that the US will avoid an historic debt default. The broad market reaction has seen USD softening amidst a peeling back of safe-haven demand while stocks and other risk assets trade higher. Though most suspected a deal would eventually be done, attributing the various setbacks to political brinkmanship, markets were clearly attaching a risk premium to the issue. With these trades now being unwound, stocks look set to move higher near-term.

Technical Views

Dow Jones

While still within the corrective leg lower from the failure around 34523.58, the Dow is rallying today and, crucially, remains above the 32072.32 level. While the market holds above this level the focus is on a fresh move higher though bulls will need to quickly get back above the 33576.05 level in order to put focus back on a test of YTD highs.