Market Update – May 18 – “America will not default”

Optimism over a debt limit deal was the catalyst for the relief rally in equities after comments from President Biden and Speaker McCarthy. Biden emphatically stated “America will not default” and voiced confidence that a deal will be reached. And McCarthy said getting a deal done this week is “doable.” A mixed housing starts report had little impact, but recent comments from Fed officials saw rate cut expectations further pared.

The USDIndex held gains a breath below 103Stocks climbed and Treasuries lost ground as confidence that the debt limit will be resolved in time to avert a default boosted risk appetite. Money flowed into stocks and as haven demand was unwound. Asia headed for its biggest gain since March, and European futures followed higher.

  • FX USDIndex spiked to 102.93. EUR down to 1.0892. JPY breached 137.74. Sterling pull back to 1.2450. AUD weakened dragging down NZD.
  • Stocks – JPN225 broke 30000 and breached 30660. The US30 was 1.24% higher, the US500 advanced 1.19% and the US100 surged 1.28%. #Western Alliance’s shares gained 10%, a move mirrored in a 7.3% gain for the KBW Nasdaq Regional Banking Index, its largest percentage increase since 2021. #Target shares climbed too, gaining 2.6%, after the retailer beat analysts’ first-quarter profit expectations. #Tesla jumped 4%, #Amazon was up 1.5% and #Alibaba rallied by 2.16%.

  • Commodities – USOil – has nudged up to $73.61 per barrel, Brent added 2.7%.
  • Gold has extended yesterday’s losses to 1974.98.

Today BOE Governor Andrew Bailey, BOC Governor Macklem & ECB President Lagarde speeches, US jobless claims and Philly Index on tap while Swiss financial markets are closed.

Biggest FX Mover @ (06:30 GMT) GBPNZD (+0.35%). Dipped to S1 at 1.9896. MAs aligned lower, MACD and RSI are negatively configured. H1 ATR 0.00299, Daily ATR 0.01568.

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Andria Pichidi

Market Analyst

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