US and European stock futures are trading a bit mixed today as traders are keeping a close eye on economic data, the US debt ceiling affair, and the recent sell-off that we have seen in AI-related stocks. The US ADP number is most likely to govern the price action in the markets today. It is important to keep in mind that the US labour market is still robust, and a large number of labour market-related readings are still as robust as pre-Covid time, which means that the Fed needs to worry less about recession and focus more on inflation.
Economic data
In Europe, it is mainly about the manufacturing PMI data, as we will get to see fresh manufacturing PMI readings from Italy, France, Germany, and Europe. Traders don’t expect much improvement in these numbers, as there is plenty of pessimism about economic growth in the Eurozone. Yes, we have seen improvement in the inflation readings in the EU, which is certainly a positive sign for the Eurozone, but we are still far from being out of the woods. The Eurozone CPI Flash estimates y/y data will be released at 10:00 AM, and the forecast is for 6.3%, while the previous reading was at 7.0%.
Debt Ceiling
The debt ceiling affair has made further progress as the politicians in the House finally passed the bill yesterday, which has further increased hopes that the debt bill will clear the final hurdles in the Senate, which is controlled by Democrats.
Even if the bill passes in the Senate, the thing about the debt ceiling is that we are only kicking the can down the road, and investors do know that there isn’t much road left. The debt ceiling drama always hurts the US’s reputation about paying its debt obligations, and this is exactly what happened this time as well, and sadly, this isn’t the last time.
There is this hope among traders now that the bill has passed the House and will get the green light from the Senate, which will support the risk-on rally among investors and traders.
Chinese Data
There is also a positive feeling among investors and traders on the back of economic data out of China. The Chinese factory activity data jumped above the critical level of 50, a level that separates the reading from contraction and growth. The Caixin manufacturing purchasing managers’ index jumped to 50.9 against the previous reading of 49.5.
Fed’s rate hike conversation
Traders are going to turn their focus on the Fed’s monetary policy action. There is still a lot of noise from the Fed members about their next policy action. Traders aren’t sure if the Fed is actually ready to pause the interest rate or if they will continue to hike interest rates as inflation is still highly sticky and stubborn in nature. Philadelphia Fed President Patrick Harker said yesterday that he is leaning more towards a rate hike, and this certainly increases hope among traders that the market will rally if the Fed pushes the pause button on its interest rate hike cycle. Having said this, the dollar index is still very much holding on to the gains, as are the US 2-year Treasury yields. Two factors show that market players believe that there is still one more interest rate hike in the pipeline before the Fed pauses its process of raising interest rates.
Gold
Gold prices are still trading in positive territory for this week, which is an encouraging sign for the previous metal traders. Gold has been out of luck as traders are concerned about the strength of the dollar index, which continues to move higher due to higher odds of another interest rate hike. This week is highly important for gold traders as the US jobs data is going to lay the foundation for gold’s price action. Any improvement in the US ISM manufacturing data is more likely to spur a rally in riskier assets today, which means we may see some retracement in gold prices. But the real test for gold prices is most likely to be on Friday, when the US non-farm data will be released.
