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Wall Street: equities surge as investors monitor inflation data

The S&P 500 and Nasdaq hit record highs as markets focus on upcoming inflation data and European political turmoil. Non-farm payrolls exceeded expectations, impacting Fed rate cut speculations.

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Overnight, the S&P 500 and the Nasdaq hit fresh record closing highs. As a focus on upcoming inflation data, and European political turmoil stole the spotlight from Friday's upside surprise in Non-farm payrolls.

For the record, Non-farm payrolls increased by 272,000 in May, exceeding consensus expectations of 165,000. An increase in average hourly earnings (AHE), coupled with an upward revision to the prior month, saw the annual rate increase to 4.1% vs. the expected 3.9%.

Additional market updates

Despite the robust establishment numbers, the household survey was significantly weaker. The unemployment rate ticked up to 4.0% from 3.9% despite a drop in the participation rate to 62.5% from 62.7%.

While the equity market sell-off was modest as traders weighed the implications of higher rates vs. stronger corporate earnings, the bond market was less optimistic. The US interest market is now pricing in about 50%, from 80% last week, after a Fed rate cut in September. Following cooler-than-expected Jolts Job Openings, ADP Employment, and Initial Jobless claims.

Whether those odds are cut further will depend on the outcome of Wednesday's CPI release for May. Headline inflation is expected to stay at 3.4% year-on-year (YoY), and core inflation expected to ease to 3.5% YoY from 3.6% prior. A hotter-than-expected core inflation number would likely set up a more hawkish outcome at Thursday morning's FOMC meeting.

What is currently expected from the FOMC meeting

Date: Thursday, 13 June at 4.00am AEST

In May, the FOMC kept the Fed Funds rate unchanged at 5.25%-5.50% for a sixth straight meeting. Fed Chair Powell stated, it would take longer than expected for inflation to return to the 2% Fed target, ruling out a rate cut and rate hike in the near term.

The June FOMC meeting is expected to see the Fed keep rates on hold. Its dots will likely be updated to show two rate cuts are expected this year rather than three, reflecting inflations' slower pace towards target. The Fed Chair is expected to emphasise the need for patience, and for incoming inflation data to cool further before the Fed acts on its rate-cutting bias.

Fed funds rate chart

Source: Federal Reserve Bank of St. Louis

S&P 500 technical analysis

The S&P 500 cash closed last week above weekly trendline resistance 5310/25 area, following a few weeks of indecision. This opens the way for the index to extend gains towards the next upside target, 5450/5500 area.

An initial decline below the March high and below the May low, of 5264 and 5191 respectively, would indicate that the uptrend has run its course. Indicating a deeper pullback is underway towards support at 5000/4950.

S&P 500 weekly chart

Source: TradingView

Nasdaq 100 technical analysis

The Nasdaq rebounded strongly in June to close above the weekly trendline resistance at 18,600ish. After a few weeks of indecision, clouded by end-of-month rebalancing sell flows. This clears the way for the Nasdaq to extend gains towards 19,400, coming from the trendline drawn from the July 2023 high of 15,932, which picks up the 18,416 high from March. Sellers will likely operate in this area.

On the downside, buyers are likely to lean against the late May 18,189 low and uptrend support around 17,850. A weekly close below support at 17,850/750, would indicate that the rally has run its course and deeper decline is underway towards 17,000.

Nasdaq daily chart

Source: TradingView
  • Source: TradingView. The figures stated are as of 11 June 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

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