LiveWire

After correcting for almost 20% since its highs, the S&P500 is showing strength for the past 3 sessions, bouncing 5%. From a fundamental perspective, while tightening is an important headwind for asset prices, strong consumer spending and business activities so far in the US are providing support to US equities and increasing their appeal compared to stocks from other regions in the world. From a technical basis, the US benchmark has finally managed to break and hold above a key moving average indicator. Looking at the chart, if current levels hold, traders are likely to retest the 4'300 level on the S&P500.

The price action of S&P500 futures is closely watched today for confirmation of the rally that was initiated last Friday. The index recorded its sixth week of losses last week as every rally during the past weeks failed to last long. The key support level to watch for on S&P500 futures is 3'930USD, should it break this level, the index is likely to retest its last week's lows of 3'860USD. 

Stocks rose Friday after Fed chair Powell pushed back against steeper interest-rate hikes. He anticipates the Fed to raise rates by 50 bps for the June and July meetings. Markets are concerned that the withdrawal in liquidity and higher interest rates could cause an economic slowdown. After 6 days in a row of selling, we are beginning to see seller fatigue, with buyers stepping in. Nasdaq futures are up 1.8% with the hardest-hit stocks rebounding the most. 

The producer price index increased at an annual rate of 11.0% in April, signaling persistent inflationary pressures. Despite the high level, the increase rate is slower than the 11.2% annual rise in the prior month, fueling hopes that we might be seeing the peak. Now the question that everybody in the market is asking is how quickly will price increases come down back to more normal levels, giving room for the Fed to reconsider its tightening policy.

US jobs data for April are out, and US labour market remains quite strong; private payrolls increased by 406'000 (vs 390'000 consensus), average hourly earnings rose 0.3% mom (vs 0.4% estimated), and unemployment was unchanged at 3.6%. What was a bit surprising is the drop in the participation rate, going in the exact opposite direction the Fed want to see. Overall, the report is solid. Clearly, the job market is strong enough for the fed to keep the tightening path as outlined on Wednesday.