S&P500 Futures: Mildly bid near yearly top above 4,200 as US policymakers prepare to avoid default

• Market sentiment remains cautiously optimistic even as US President Biden, House Speaker McCarthy unveil debt ceiling extension deal.
• Challenges to deal’s passage from some Democrats and Republicans weigh on risk appetite.
• Pre-NFP anxiety, holidays in major markets also restrict the positive mood.

Risk appetite remains slightly positive on early Monday as market players take a sigh of relief, although for now, amid US policymakers’ announcements of an initial deal to extend the debt ceiling expiration. Even so, concerns that the agreement is yet in the pipeline for being the law and the default looms on June 05 amid dissatisfaction with the deal prod the risk-on mood amid holidays in the US, UK and Germany.

Amid these plays, S&P500 Futures remain mildly bid near the highest levels since August 2022, up 0.30% intraday around 4,225 whereas the bond markets are inactive amid off in multiple key bourses by the press time.

US President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal to raise the federal government's $31.4 trillion debt ceiling through January 2025. Following the announcements, US President Biden strongly urged both chambers to pass the agreement while McCarthy appears to have no difficulties in getting the deal through the House. However, some of the policymakers have clearly shown their discomfort with the compromises that together tried to avoid the ‘catastrophic’ default, which in turn challenges the market’s positive outlook about the key issue.

Additionally, upbeat US data and comments from the International Monetary Fund Managing (IMF) Director Kristalina Georgieva, as well as some of the Federal Reserve (Fed) officials, also underpin the hawkish Fed bias and weigh on the sentiment.

That said, US PMIs, the second estimate of the first quarter (Q1) 2023 Gross Domestic Product (GDP), Durable Goods Orders and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge, marked upbeat details in their latest readings.

With this, the interest rate futures and the CME’s FedWatch Tool show recently increasing support for the Federal Reserve’s (Fed) 25 basis points (bps) rate hike in June.

Elsewhere, China’s improvement in Industrial Profits and the global central bankers’ optimism, as well as upbeat comments from the IMF, keeps the market players on a dicey floor.

Moving on, the US jobs report for May, especially the Nonfarm Payrolls (NFP) will be the key data to watch for the market players for clear directions. However, major attention will be given to the US Congress voting on the debt ceiling deal.

Als read: Gold Price Forecast: XAU/USD bears approach $1,930 support on US debt ceiling extension, NFP eyed