The removal of the U.S. debt ceiling has reignited global market enthusiasm, bolstered by the resilience of the robust U.S. labor markets that defy concerns of an impending recession, even as interest rates approach their peak levels. The recent passing of legislation by both the Senate and the House to lift the ceiling and avoid default has cleared a major external risk from the equation.
With three consecutive monthly gains, the S&P500 and Nasdaq surged to nine-month closing highs, propelled by rising expectations that the Federal Reserve will maintain interest rates and relief that the U.S. Congress approved a debt limit suspension.
While the debt limit saga seems to be coming to an end, market focus has shifted to the upcoming decisions of the Federal Reserve. U.S. economic data have further strengthened the case for the Fed to maintain its current stance.
In the midst of these developments, the U.S. dollar has struggled to find direction as market participants eagerly await clues from the Fed. Meanwhile, gold prices have received a boost as Treasury yields slip ahead of the resolution of the debt ceiling issue.
The eagerly anticipated May employment report, set to be released on Friday, marks the final major data point in a shortened trading week that greeted June with excitement among global investors. Surpassing expectations, the U.S. added 339,000 jobs in May, surpassing the average forecast of 190,000 new payrolls.
On the other side of the Atlantic, the euro experienced a significant decline against the U.S. dollar due to weaker-than-expected inflation data across several European Union countries. This pointed to a rapid decrease in price pressures, reducing the necessity for the European Central Bank (ECB) to implement multiple interest rate increases in the coming months. Despite this, ECB President Christine Lagarde emphasized the need for further policy tightening, citing elevated euro zone inflation.
The ECB has already raised rates by a cumulative 375 basis points since July and is expected to make another move in June. However, recent data revealed that inflation eased more than anticipated in May, standing at 6.1%. This adds a layer of complexity to the ECB’s decision-making process.
Overall, the lifting of the U.S. debt ceiling has injected renewed optimism into world markets, with a focus on the Federal Reserve’s next steps and the evolving economic landscape on both sides of the Atlantic.