24 May

The RBNZ raised the interest rate to a record high. The US can’t agree on raising the debt ceiling

May 24, 2023

By JustMarkets

The US stock indices ended Tuesday with a negative result. By the close of trading on the stock market Dow Jones (US30) decreased by 0.69%, and S&P 500 (US500) was 1.12% lower. The Technology Index NASDAQ (US100) fell by 0.26% on Tuesday. Stock indices are down again due to growing concerns about the US default. Yesterday lawmakers concluded another round of debt ceiling talks without a deal. The lack of progress comes just days before June 1st, when the US may default on its debt. But it is worth realizing that the likelihood of default is low because such debates happen almost every year and every time politicians agree. But this time, the politicians really delayed the deadlines.

The minutes from the last FOMC meeting will be released today. Despite the hawkish statements from Fed officials, about 88% of traders continue to believe that the US central bank will suspend the tightening cycle at the June meeting.

The latest economic data showed that the US manufacturing PMI fell into contraction territory from 50.2 to 48.5. The service sector was much better, with the PMI rising from 53.6 to 55.1. The drop in the manufacturing sector is the first wake-up call for the US Federal Reserve in terms of high-interest rates starting to have a negative impact on the economy.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.44%, France’s CAC 40 (FR40) fell by 1.33% on Tuesday, Spain’s IBEX 35 (ES35) lost 0.41%, and the British FTSE 100 (UK100) was down by 0.10% yesterday.

The May Eurozone PMI report showed that fears of higher core inflation should be centered around services, while goods inflation is slowing. Services business activity continues to point to strong growth despite the index dropping from 56.2 to 55.9. Meanwhile, manufacturing business activity showed a slowdown for the first time in 6 months. The more than six-month decline in the index indicates a weakening of the manufacturing sector. The divergence between services and manufacturing is growing, with services inflation accelerating again.

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According to the International Monetary Fund’s updated forecasts on Tuesday, the British economy will avoid a recession this year. The IMF now thinks the British economy will grow by a modest 0.4% this year, partly as a result of rising wages. Despite the more optimistic estimate, the IMF said that inflation is likely to remain high in the coming years and will not return to the Bank of England’s target of 2% until mid-2025.

At the moment all the factors are adding up to the rise in oil prices. First, the Canadian wildfires are reducing oil supplies in North America. Second, demand in the US is expected to increase after Memorial Day, which unofficially marks the start of summer road trips in America. Third, Saudi Arabia’s energy minister threatened yesterday to cut production sharply if oil prices fall below $70 a barrel. Fourthly, analysts still expect the growth of demand in China (the biggest oil importer).

Asian markets were mostly down yesterday, except the Indian index. Japan’s Nikkei 225 (JP225) decreased by 0.42%, China’s FTSE China A50 (CHA50) fell by 1.57%, Hong Kong’s Hang Seng (HK50) ended the day down 1.25%, India’s NIFTY 50 (IND50) added 0.18%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday negative 0.05%.

The Central Bank of New Zealand (RBNZ) expectedly to raise interest rates by 25 basis points to 5.5%, the highest level in more than 14 years. The RBNZ also said that inflation remains too high and still predicts a recession this year. According to the monetary policy statement (MPS) accompanying the rate decision, the RBNZ expects the official monetary rate at the current level of 5.5% to be the peak and remain at that level until the middle of next year.

S&P 500 (F) (US500) 4,145.58 −47.05 (−1.12%)

Dow Jones (US30)33,055.51 −231.07 (−0.69%)

DAX (DE40) 16,152.86 −71.13 (−0.44%)

FTSE 100 (UK100) 7,762.95 −8.04 (−0.10%)

USD Index 103.56 +0.36 +0.35%

Important events for today:
  • – New Zealand Retail Sales (m/m) at 01:45 (GMT+3);
  • – New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
  • – New Zealand RBNZ Monetary Policy Statement at 05:00 (GMT+3);
  • – New Zealand RBNZ Press Conference at 06:00 (GMT+3);
  • – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone German Ifo Business Climate (m/m) at 11:00 (GMT+3);
  • – UK BoE Gov Bailey Speaks at 16:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – US FOMC Meeting Minutes at 21:00 (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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