Stock index futures posted modest gains following Friday's strong statistics. Investors are still cautiously optimistic about the ability of the US to prevent a catastrophic default. Futures contracts on the S&P 500 advanced by nearly 1.0% on Friday, while Nasdaq 100 futures rose by about 1.5%. The dollar lost some ground against the euro and the British pound but recovered by midday.
The Stoxx Europe 600 index trimmed early gains due to insufficient liquidity as the markets in the US, UK, and some European countries were closed for national holidays. Spanish stocks declined after Prime Minister Pedro Sanchez called for early elections following his party's heavy losses in regional and municipal elections on Sunday. Chinese stocks also traded downwards.
As mentioned earlier, US President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their debt-ceiling agreement would pass Congress. However, even if lawmakers close the deal before the US government runs out of cash, traders still have challenges to face, including the prospect of another interest rate hike by the Federal Reserve, persistently high inflation, and the risk of an economic recession, as indicated by Friday's data.
The positive thing is that the agreement has been finally reached. However, any Democrat may turn everything upside down during the voting process. Moreover, the new deal that raises the debt limit while capping spending will inevitably affect economic growth rates.
Against this backdrop, two-year Treasury bonds, which are sensitive to interest rates, ended the previous week with a small volatility spike and no significant changes. The two-year yield hovered around 4.65% after a report on consumer spending showed that the US Federal Reserve still has much work to do to bring inflation back to its target.
Meanwhile, the Turkish lira lost ground following the news that Recep Tayyip Erdogan won the second round of Turkey's presidential election on Sunday, extending his rule into its third decade in power. It prompted investors to seek any signs that he would begin to relax the state's tight grip over markets.
Gold remained unchanged due to lower demand for safe-haven assets, while oil maintained its Friday's upside momentum. Bitcoin also advanced, reflecting a moderately optimistic tone.
From a technical point of view, demand for the S&P 500 index persists. Buyers still have a chance of building an uptrend. To extend gains, the price needs to consolidate above $4,200. In this case, the index may surge to $4,229. Another important task for bulls is to retain control of the $4,290 mark. If they succeed, the asset will post further gains. In case of a downward movement amid renewed debates over the US debt ceiling, buyers are expected to make every effort to take control of the market at the levels of $4,175 and $4,143. A breakout will quickly bring the trading instrument back to $4,114 and pave the way to $4,091.
