Inside Markets

The probability of a June Fed rate hike increases to 40% after the RBA and BOC surprised markets with hikes.

Broad sector participation returns this morning with the Russell 2000 (RTY) outperforming on state-run media reports about expected China stimulus in the back half of the year.

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Today's ISM services report fits the disinflation narrative that reemerged in mid-April.

Yesterday's rally was supported by positive flows that started in the futures market during trading hours. This may have contributed to broadening leadership and participation from underperforming sectors such as REITS.

The S&P 500 (SPX) is trading above 4200 with cyclical leadership and broad sector participation. The improvement in market internals is encouraging, but closing levels are more important.

Fed officials continue to use hawkish rhetoric with rising expectations for another rate hike in June.

Assuming the debt ceiling agreement is passed this week simply means that market attention will shift back to the challenging macro backdrop. US inflation data remains elevated, global manufacturing PMIs are in contraction and China activity data is rolling over. 

Gains in AI-related stocks have started a performance chasing rally that threatens the upper end of the S&P 500’s technical resistance band near 4200.

US equities are mixed with Tech as the upside standout after strong overnight results from NVDA. 

Yesterday's risk-off trade occurred 10 days before the estimated debt ceiling x-date of June 1.

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