Lack of progress in raising the US debt limit has a negative impact on financial markets

May 10, 2023

At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.17%, and the S&P 500 Index (US500) lost 0.46%. The NASDAQ Technology Index (US100) fell by 0.63% on Tuesday. Discussions over the US debt limit dampened investor sentiment as there was no progress on preventing a US default before the anticipated June 1 deadline.

President Joe Biden will meet with House Speaker Kevin McCarthy today. Both politicians face the need to reach an agreement on the debt ceiling, or else the US will face default as early as June 1. McCarthy is pushing for spending cuts and deficit reduction in exchange for raising the debt ceiling, while Biden wants it raised as a condition for any budget negotiations.

According to a new poll, public confidence in Jerome Powell’s leadership of the Federal Reserve has plummeted and is now at or below the level of his predecessors. A Gallup poll released Tuesday found that 36% of Americans believe they have confidence that the Federal Reserve chairman will do or recommend the right thing for the economy. That’s down from 37% for Janet Yellen during her first year at the helm of the Fed in 2014. Confidence in the Fed usually follows the state of the economy. President Joe Biden has 35% American confidence in the economy, the lowest of any president since George W. Bush got 34% during the 2008 financial crisis.

Shares of PayPal Holdings Inc (PYPL) fell more than -11% as the payments company cut its annual transaction margin forecast. Shares of Palantir Technologies (PLTR) jumped more than 23% yesterday after the analyst company reported better-than-expected first-quarter results and said it expects earnings in every quarter this year.

Stock markets in Europe were mostly down on Tuesday. Germany’s DAX (DE30) added 0.02%, France’s CAC 40 (FR40) decreased by 0.59% yesterday, Spain’s IBEX 35 index (ES35) fell by 0.31%, and the British FTSE 100 (UK100) closed lower by 0.18% on Tuesday. The International Monetary Fund is still concerned about the recent turmoil in the banking sector and believes the risk of a banking crisis remains.

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The Bank of England’s monetary policy meeting is due tomorrow. Inflation in the UK is much higher than in the United States and Europe, so the Bank of England will seek to reduce inflationary pressures. Markets expect the Bank of England to raise the interest rate by 0.25% from 4.25% to 4.5%, marking the twelfth consecutive rate hike since December 2021. The Bank of England’s final interest rate is expected to be 4.85% by September 2023.

Crude oil prices rose for the third straight session amid reports that the Biden administration will cancel the remaining withdrawals from the Strategic Petroleum Reserve (SPR) and instead add to it a volume that could reach 200 million barrels. Before the news, oil prices were declining yesterday due to weak data from China. China’s imports fell sharply in April, while exports rose more slowly than expected, adding to signs of a slower-than-expected economic recovery for the world’s biggest crude oil importer. There had been high hopes for the Chinese economy that demand for crude oil would rise sharply in the second quarter, but so far, this has not been seen.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) gained 1.01% on the day, China’s FTSE China A50 (CHA50) decreased by 0.55% yesterday, Hong Kong’s Hang Seng (HK50) was down by 2.12%, India’s NIFTY 50 (IND50) added 0.01%, and Australia’s S&P/ASX 200 (AU200) was down by 0.17%.

Real wages in Japan fell for the twelfth consecutive month in March as consumer inflation outpaced nominal wage growth. Large companies negotiated wage increases at labor talks in March, and whether this trend spreads to small businesses depends on the outlook for the normalization of monetary policy by the Bank of Japan under new Governor Kazuo Ueda. Inflation-adjusted real wages, a barometer of household purchasing power, fell by 2.9% in March from a year earlier, following the same rate of decline in February.

S&P 500 (F) (US500) 4,119.17 −18.95 (−0.46%)

Dow Jones (US30)33,561.81 −56.88 (−0.17%)

DAX (DE40) 15,955.48 +2.65 (+0.017%)

FTSE 100 (UK100) 7,764.09 −14.29 −0.18%)

USD Index 101.65 +0.27 +0.27%

Important events for today:

– Canada Building Permits (m/m) at 15:30 (GMT+3);
– US Consumer Price Index (m/m) at 15:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– Switzerland SNB Chairman Jordan speaks at 19:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Lack of progress in raising the US debt limit has a negative impact on financial markets