US GDP Revised Higher, Debt Ceiling Negotiations Pose Challenges

The US GDP received an upward revision in its second reading, contributing to a surge in treasury yields and a rally in tech stocks, driven by Nvidia's AI-led outperformance. However, the positive market sentiment overshadowed the ongoing uncertainty surrounding the stalled debt ceiling negotiations, leading to a decline in gold prices.

The Big News

In the second reading, the US Q1 GDP was revised upward, indicating a 1.3% annualized growth rate, surpassing the initial 1.1% flash reading. However, core PCE, the benchmark inflation indicator tracked by the Fed, rose to 5.0% on a quarterly basis, adding to concerns about rising prices. Despite these numbers, the percentage of traders expecting a pause at the next Fed meeting decreased to 60%.

While debt ceiling negotiations remain at an impasse, both sides express optimism about reaching a deal. Reports suggest that the difference lies in $70 billion of discretionary spending. Although this issue adds uncertainty to the market, the overall rise in market sentiment from the GDP revision overshadowed it, resulting in a decline in gold prices.

ECB official Francoise Villeroy indicates that most of the rate hike journey has been completed, echoing sentiments expressed by other ECB speakers. Villeroy projects that rates will peak in three meetings, suggesting a clear timeline for future policy decisions. Meanwhile, the Euro experiences a third consecutive decline against the dollar, with short-term support at $1.07 unless bullish activity pushes it back above $1.0750.

Finance Minister Shunichi Suzuki of Japan finally acknowledges the recent weakness in the Yen, pledging to closely monitor FX movements. He emphasizes the importance of exchange rates reflecting fundamental economic conditions. USD/JPY reaches the 140.00 level but faces rejection, with potential resistance at 142.33 and solid support at 138.74.

Oil prices witnessed a significant drop of 3.20% following remarks from Russian Deputy Prime Minister Alexander Novak, indicating that OPEC+ is unlikely to implement further production cuts at the June 4 meeting. This decline wiped out all gains made earlier in the week, sending WTI crude oil prices to $71.80 per barrel, leaving them vulnerable to testing the $70 handle. Key levels to watch include $74.70 as the peak and a potential breakdown exposing $69.50 per barrel.