With a tentative agreement in place to raise the U.S. debt ceiling, investors are turning their focus towards the Federal Reserve’s interest rate strategy. The upcoming U.S. jobs report on Friday will be closely monitored, as a robust figure would bolster expectations for another rate hike in June.

Over the weekend, President Joe Biden and House Majority Leader Kevin McCarthy reached a favourable agreement to lift the federal debt ceiling until January 2025, amounting to $31.4 trillion. This deal includes spending caps and cuts in government programs, marking a significant development that will face its initial test in Congress on Tuesday during the House Rules Committee examination of the bill.

While optimism surrounds this debt ceiling agreement, safeguarding against a default on U.S. debt, concerns persist regarding its fate as it progresses through the divided Congress. Nevertheless, investors remain optimistic that the committee will ultimately endorse the agreement as it reaches the House.

Economists anticipate that Friday’s nonfarm payrolls report for May will reveal the addition of 180,000 jobs to the U.S. economy. In April, the country experienced an accelerated job growth of 253,000, coupled with solid wage gains.

The forthcoming jobs report represents one of the final pieces of data before the Federal Reserve’s meeting in June. During the May meeting, the U.S. central bank signalled openness to pausing its aggressive rate hiking campaign in June. Since March 2022, the Fed has raised rates 10 times, amounting to a 5.25%.

However, certain Fed policymakers have expressed concerns that inflation is not cooling rapidly enough, a viewpoint reinforced by recent data showing core inflation surging to 4.7% in April, well above the Fed’s 2% target.

Nonetheless, the latest inflation data suggests that the Federal Reserve might not conclude its rate hikes at the June 14 meeting. According to the CME FedWatch tool markets are now pricing in a 60% chance that the Fed would raise rates by another 25-basis points at its meeting on the 14 ^th of June.

In April the annual Personal Consumption Expenditures, or PCE index, expanded at 4.4% versus forecasts for 3.9% and previous growth of 4.2%. In April alone, it jumped 0.4%, as expected and versus a prior expansion of 0.1%.

Core PCE, which excludes the volatile food and energy prices, experienced a 4.7% annualized gain, surpassing both the projected and previous rate of 4.6%. On a monthly basis, it rose by 0.4%, exceeding the forecast and prior rate of 0.3%.

Source: Tradingview

From technical analysis point of view, the tech heavy benchmark index has been trading in an upward trajectory over the past five months with recent price action breaking above its key resistance of 13,720, which suggests that further strength could be seen in the coming month(s).

The daily Relative Strength Index indicator has reached overbought territory suggesting that a pull back to unwind the overbought momentum conditions could be seen soon. However, a subsequent re-test of the 15,200 zone appears to be highly likely.

The big tech rally from the onset of the year has further to run as the risk of a U.S. recession drives investors into stocks that offer growth. Investors have little clarity on interest rates and the economy, which boosts the appeal of stocks with robust cash flows and promising revenue growth, despite having hefty price tags. The tech-heavy index has erased more than half the losses it saw from its November 2021 high and is gaining more momentum with the buzz around artificial intelligence.

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