Concerns over rising interest rates and growing US debt dominated sentiment on Thursday, as investors reacted to a sweeping tax and spending bill passed by the House. The legislation, estimated to add nearly $4 trillion to the deficit, pushed the 30-year Treasury yield to its highest level since October 2023 before easing later in the session. That spike in yields stirred worries about long-term inflation and the credibility of US fiscal policy. While technology shares offered some support, broader market momentum faded as caution set in. Traders remain focused on how rising borrowing costs and government spending will shape the economic outlook.

Key Takeaways:

  • Dow Ends Flat After Choppy Session: The Dow Jones Industrial Average slipped just 1.35 points to finish at 41,859.09, marking a virtually unchanged day as investor caution over fiscal risks and rising yields kept trading ranges narrow. 
  • S&P 500 Drifts Lower as Yields Weigh: The S&P 500 edged down 0.04% to settle at 5,842.01 as a spike in long-dated Treasury yields and deficit fears overshadowed otherwise quiet trading. The modest decline masked underlying investor unease about the inflationary impact of expansive fiscal policy.
  • Nasdaq Climbs Modestly on Tech Strength: The Nasdaq Composite rose 0.28% to 18,925.73, lifted by gains in several major technology names. Despite the broader market’s struggles with yield pressures, appetite for select growth stocks helped support the index.
  • Europe Slides on Fiscal Concerns and Weak Data: European equities closed lower on Thursday, dragged down by US deficit fears, a sharp rise in long-term gilt yields, and fresh evidence of economic slowdown across the eurozone. The FTSE 100 dropped 0.54% to 8,739.26, pressured by a broad risk-off tone and rising UK bond yields. The 30-year gilt yield hit 5.573%, its highest since 1998, reflecting anxiety over the UK-EU post-Brexit deal and broader global yield dynamics. France’s CAC 40 lost 0.65%, while Germany’s DAX fell 0.5% from record highs, retreating to 24,008. The FTSE MIB in Italy declined 0.7%, snapping its recent rally. German business activity contracted for the first time this year, with the composite PMI falling to 48.6 in May. Additionally, eurozone PMI dropped below 50, indicating the region is starting to feel the pressure from US trade policy and fiscal ripple effects. 
  • Asia Declines as US Deficit Anxiety Spills Over: Asia-Pacific markets extended their losses Thursday as regional sentiment mirrored Wall Street’s unease over ballooning US debt and surging yields. Japan’s Nikkei 225 dropped 0.84% to 36,985.87 and the Topix lost 0.58%, with PMI data showing a fall back into contraction at 49.8. Manufacturing softness and weakening output clouded the near-term outlook. In South Korea, the Kospi fell 1.22% and the Kosdaq shed 0.82%, with new loan delinquency data adding to concerns about corporate credit quality. Australia’s ASX 200 declined 0.45%, pressured by commodity price headwinds and waning global growth signals. In Hong Kong, the Hang Seng index fell 1.19% while mainland China’s CSI 300 edged down 0.06%. 
  • Oil Falls on OPEC+ Output Fears: Oil prices fell as reports surfaced that OPEC+ may raise output in July. Brent dropped 0.72% to close at $64.44 a barrel, while WTI lost 0.6% to settle at $61.20. The potential for a 411,000 bpd increase sparked fears that global supply could outstrip demand. Inventory data also disappointed, showing a surprise build of 1.3 million barrels versus expectations for a drawdown.
  • Treasury Yields Back Off Highs After Spike: The 30-year Treasury yield retreated to 5.052% after earlier touching 5.161%, its highest level since October 2023. The 10-year yield eased to 4.541% and the 2-year fell to 3.994%. The sell-off was driven by a nearly $4 trillion House tax-and-spending bill, which threatens to swell the deficit and hurt long-term debt credibility. A poor 20-year auction earlier in the week had already rattled bond markets.
  • US Labour Market Remains Resilient but Risks Loom: Initial jobless claims fell by 2,000 to 227,000 for the week ending May 17, reflecting continued labour market stability as businesses remain reluctant to cut staff. However, continuing claims rose by 36,000 to 1.903 million, suggesting it is becoming harder for the unemployed to re-enter the workforce. While the Federal Reserve has used this labour strength to justify holding rates steady, looming risks from Trump’s tariffs and rising price pressures could weigh on job creation ahead. Existing home sales also fell 0.5% in April, while inventory levels edged higher, indicating a more cautious housing market environment as borrowing costs rise.

FX Today:

  • EUR/USD Slides Below Key Level Amid Resistance Rejection: EUR/USD closed at 1.1283 on Wednesday, falling 0.40% as the pair reversed from an intraday high near 1.1344. The euro failed to hold above the 1.1300 mark, a psychological level that continues to cap upside momentum. Despite this pullback, the broader trend remains supportive with price action holding well above the 50-day SMA at 1.1139. The 100-day and 200-day SMAs at 1.0799 and 1.0805 remain far below, reinforcing the underlying bullish bias. For now, initial support is seen at 1.1250, with a break below that opening the door toward 1.1150.
  • GBP/USD Approaches Resistance After Four-Day Rally: GBP/USD edged up 0.06% to close at 1.3427 on Wednesday, extending its winning streak to a fourth consecutive session. The pair briefly hit 1.3441 before easing slightly, stopping just short of a major resistance zone around 1.3450. Sterling continues to trade with strong bullish momentum, well above its 50-day SMA at 1.3153. Support beneath lies at 1.3300 and then deeper around 1.3250, while a break below these levels could bring the 100-day SMA at 1.2839 into play. The rally has added nearly 500 pips since mid-April, driven by a softer US dollar backdrop and strong demand for sterling. A daily close above 1.3450 would likely trigger a run toward 1.3600 and the July 2023 highs near 1.3750. 
  • USD/CHF Attempts Rebound After Hitting Yearly Lows: USD/CHF climbed 0.39% to close at 0.8282 on Wednesday, bouncing modestly after hitting a new 2025 low at 0.8233 earlier this week. Despite the lift, the pair remains firmly in a downtrend, capped by the declining 50-day SMA at 0.8444. Price action has shown repeated failures to regain even minor resistance levels, reinforcing the strength of bearish control. The 100-day and 200-day SMAs, both near 0.8730, remain far above current levels, highlighting the distance the pair would need to climb to signal a genuine reversal. Short-term resistance stands at 0.8350, while sustained weakness below 0.8230 could target the 0.8100-0.8050 area. Momentum remains heavy and sentiment favours the franc unless broader dollar strength emerges.
  • AUD/USD Pulls Back as Resistance Caps Recovery: AUD/USD closed at 0.6411 on Wednesday, retreating 0.35% after failing to break through resistance near 0.6450. The pair has now logged two straight days of losses and is back near the lower end of its short-term range. Technically, the pair remains range-bound, with the 200-day SMA hovering at 0.6453 above and the 50-day SMA offering interim support at 0.6330 below. A break above 0.6460 remains the key bullish trigger, potentially opening up a move toward 0.6550. Conversely, failure to hold 0.6330 could lead to a test of the 0.6200 zone. 
  • Gold Pulls Back from Highs but Holds Bullish Structure: Gold settled at $3,293 on Wednesday, down 0.71% after reaching an intraday peak of $3,345. The drop marked a short-term pause in its broader rally, but the metal continues to trade above the $3,300 threshold on strong technical footing. The 50-day SMA at $3,192 offers immediate support, followed by deeper levels near $3,001 and $2,807 at the 100-day and 200-day SMAs. Recent price action shows higher lows and firm demand on dips, suggesting bulls remain in control. The $3,350 level remains a key resistance zone and breakout trigger, with a clear move through it likely propelling gold toward $3,500. On the downside, watch $3,250 and $3,200 as interim support if selling pressure extends further.

Market Movers:

  • Advance Auto Parts Soars on Narrower Loss: Shares surged 57% after the auto parts retailer posted a smaller-than-expected loss of 22 cents per share in the third quarter. 
  • Urban Outfitters Rallies on Strong Q1 Results: The stock jumped 23% after the retailer posted first-quarter earnings of $1.16 per share on $1.33 billion in revenue. 
  • Snowflake Gains on Earnings Beat: Shares climbed 13.4% after the data storage company reported stronger-than-expected Q1 earnings. 
  • Sunrun Crashes on Tax Bill Fallout: The solar stock plummeted more than 37% as investors reacted to provisions in the House Republican tax bill seen as negative for green energy. Peer stocks also fell sharply, with SolarEdge and Enphase down over 24% and 19%, respectively.
  • Seagate Technology Advances on Buyback Plan: Shares gained 4.2% after the company announced a $5 billion share repurchase program. The buyback is set to extend through its fiscal year ending in 2028, signalling long-term confidence from management.

Investor caution dominated Thursday’s session as rising long-term yields and renewed deficit concerns overshadowed otherwise stable economic signals. While labour market data suggested ongoing resilience, the passage of a $4 trillion House bill raised red flags around inflation, debt sustainability, and bond market credibility. Risk sentiment remained fragile across global equities, with both European and Asian markets under pressure and oil prices sliding on OPEC+ output speculation. As traders brace for Senate deliberations and further data on inflation and growth, attention is firmly fixed on how fiscal policy choices may shape the Fed’s next move and the trajectory of yields.