As the US debt ceiling saga seems to be coming to an end, the market’s attention now shifts to US Non-Farm Payrolls, which is thought to provide a clearer picture on how the Federal Reserve (Fed) may treat interest rates at its upcoming meeting.
The majority of Democrats and Republicans supported the bill to suspend the $31.4 trillion debt ceiling on Wednesday, and it has already moved to the Senate, which must ratify it by Monday’s deadline for it to take effect. In theory if this is not done, the government will run out of funds needed to meet its obligations, even though some believe this will only happen days or even weeks after the deadline.
The market stayed more attentive to economic data after the bill's approval, which will influence the Fed's next monetary policy decisions.
According to the ADP National Jobs Report, the economy created more jobs than was anticipated in May, while weekly jobless claims from the Labor Department only slightly increased, indicating that the US labor market is still strong.
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In any case, Non-Farm Payrolls, which will be the number that has the biggest impact on the Fed's next decision, is the main employment data that will be released today.
However, according to the Purchasing Managers’ Index (PMI) statistics, the US manufacturing sector shrank in May for the seventh consecutive month.
With all this being said, and after the release of recent data, the chances of a pause in rate increases at the Fed's policy meeting on June 13–14 were at 72%. This was helped by comments from Fed officials yesterday in favor of a pause.
But still, the scenario remains uncertain, and much will depend to a large extent on today's employment figures and next week's Consumer Price Index (CPI) figures.
Yesterday, US Treasury bond yields continued to decline, reversing the increases they had experienced owing to concern of a US government default if a deal to extend the debt ceiling was not reached.
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And because market interest rates fell, the Dollar fell against all of its competitors, providing gold a bullish momentum that eventually brought it close to the $1982 per ounce resistance level. With potential targets in the $2011 range per ounce, it technically moves forward above this obstacle.
Sources: Bloomberg, Reuters
