US traders will return from Independence Day vacation, but the trading day may start quietly with FOMC minutes due for release.
US30: Daily Chart
The US30 index is testing a big resistance level that could see a breakout if policymakers hint at a further pause in rate increases. The 34,500 level is the one to watch during the trading session.
Traders expect to see two more rate increases from the Federal Reserve. However, inflation continues to track lower, and they may stop ahead of that. An inflation index that the central bank watches has dropped to its lowest level since April 2021. Lower oil prices have led to less price pressure, with food also trending lower.
“The lower-than-expected monthly CPI print for May has, in our view, tilted the balance of risks to an on-hold decision in July,” analysts said.
Fed Chair Jerome Powell said the Fed was still expected to hold interest rates at their peak for an extended period of time to avoid any resurgence in inflation.
Meanwhile, Powell said last week that the central bank may have to tighten its oversight of the American financial system after the collapse of Silicon Valley Bank. That could pressure banking stocks, with institutions likely being forced to hold more money as a buffer against loan losses. That could slow business activity in an economy already slowing due to higher interest rates.
Recent data showed global mergers and acquisitions (M&A) deals dropped sharply during the first half of 2023. PwC reported over 25,500 deals in the first half of 2023, up from 29,725 deals for the same period last year, or 13.77% less. That was down even more from a huge 33,667 deals in 2021. The US will get further updates on economic strength with the release of ISM services sector data on Thursday, while the latest jobs market release comes on Friday. A lower print of 225k jobs added is expected after last month’s 339k number. The unemployment rate is expected to slow to 3.6% from 3.7%, which is one of the reasons for the continued interest rate increases. The US30 could mount an important breakout if traders expect a more dovish central bank outlook.
