Headlines

* Debt limit deal moves toward House vote, hardliners not happy

* Australia monthly inflation jumps to 6.8%, ups rate pressure

* Dollar sags versus yen after Japan warning, AUD slides on China slowdown

* Asian stocks slump to monthly loss as China data disappoints

FX: USD printed a fresh cycle 10-week high at 104.53 on the DXY. But the index closed back in the recent range in continued consolidation mode. The mood was impacted by Republican hardliners voicing opposition to the debt ceiling bill. The 2-year yield finally fell after multiple days of gains. It plunged the most since the start of the month to close on its lows at 4.45%. The 10-year yield also dropped sharply to finish at 3.69%. The 200-day SMA is at 3.64% as support.

EUR fell to a two-month low of 1.0671 before paring some of its losses. It closed back in its recent range above 1.07 but is below that level again this morning. GBP climbed for a third day to a high at 1.2446 and its 50-day SMA at 1.2441. However, cable is back under 12.4 today. USD/JPY eked out a new six-month top at 140.93 before closing below 140. AUD has fallen below 0.65 today and looks to breaking down after bearish consolidation. NZD is making similar moves lower towards 0.60. These levels were last seen in November 2022. USD/CNH has made fresh cycle highs at 7.1209 as the yuan continues to weaken after soft data.

Stocks: US equities choppy as market participants awaited further news about the debt limit agreement. The broad-based S&P 500 closed flat on the day at 4205. The blue-chip index traded both above and below the key zone around 4195/4200. The Nasdaq 100 finished higher for a third day closing at 14353 and just off its high at 14520. Strength in tech and chipmakers offset concerns around the passing of the debt ceiling bill. The semiconductor index has added more than 40% this year.

Asian stocks were mostly lower after the subdued wider Wall Street handover. Disappointing Chinese PMI data hasn’t helped. The Nikkei 225 was hurt by weak retail sales and industrial production figures. The Hang Seng fell on notable softness in local tech stocks.

US equity futures are in the red.  European equity futures are pointing to a lower open. The Euro Stoxx 50 closed up 0.7% yesterday.

Gold was supported by the 100-day SMA, now at $1937. It dipped below it but rebounded strongly after closing near the February top at $1959. Falling US Treasury yields have helped. Focus still remains on the US fiscal drama with NFP looming on Friday.

Day Ahead – AI euphoria rally continues

AI-related stocks extended their rally from the previous week as markets got back to normal volumes after the holiday-related start to the week. Nvidia is the key stock of the moment. It breached the $1 trillion market cap level for the first time early in the US session. But it ultimately closed short of that threshold.

It is the first chipmaker to join that elite club and only the fourth US based giant after Amazon, Apple and Alphabet. Indeed, Nvidia’s market value jumped $207 billion in two days. The first-day pop was the third biggest gain in US history. This took place after the company’s recent sales forecasts came in 53% higher than analysts had expected. Soaring demand for chips in generative artificial intelligence systems is boosting chipmakers. The AI phenomenon has delivered what Wall Street is calling a “historic shock to markets”. The broader market is being carried along too, with the breadth of leaders still very narrow.

Chart of the Day – Can the S&P 500 close decisively above 4200?

Along with the mania in chips, all eyes are on the wider blue-chip S&P 500. The 4200 level has been a ceiling and resistance for prices over many months this year. The tech-led rally is being driven by multiple expansion as tech had the second worst earnings revisions but is the best performing sector to date. The surge has also taken place during an environment of rising interest rates. So, the yield driven relationship between value and growth has broken down in the past few weeks.

The S&P 500 closed above 4200 after popping up to 4231 intraday on Tuesday. The early February top has capped index gains this year. A strong weekly close could see more upside with bulls eyeing up 4300. The 100-week SMA sits at 4198 to reinforce the 4200 pivot zone.