U.S. Debt Ceiling Standoff Into the Eleventh Hour

May 22, 2023

Without a higher debt ceiling, the U.S. federal government will begin to not meet all its spending obligations by the start of June, prompting a default by mid-month, if not somewhat sooner. Biden and McCarthy are to resume talks to avert such a crisis today. Fed Chairman Powell again insinuated that banking system strains could be exacerbated by the uncertain fiscal situation. If that happens, the Fed might not need to raise interest rates. Despite that possibility, the ten-year U.S. treasury yield is  two basis points today, and its British and German counterparts show gains of four and two basis points.

The weighted DXY dollar index is steady. The dollar is unchanged against the loonie, kiwi, and sterling; up 0.4%, 0.3% and 0.2% versus the Japanese yen, Chinese yuan and Aussie dollar; and down 0.2% relative to the Swiss franc and 0.1% vis-a-vis the euro.

U.S. equities opened a tad higher. Share prices climbed 1.2% in Hong Kong and 0.9% today in Japan where the G7 annual summit was held over the weekend. The German Dax is off 0.4%, and the British Ftse is flat.

Prices for WTI oil and Comex gold are down 0.6% and 0.3%, while Bitcoin has risen 0.7%.

Turkish  and Danish consumer confidence improved in May to 58- and 14-month highs. Their latest readings of 91.1 and -15.1 compared with record lows last year of 63.4 and -37.0.

Dutch and Belgian consumer confidence fell back in  May to 2-month lows, having reached 14-month highs in April versus record lows set in October 2022.

Price data reported this Monday revealed’

  • Record high consumer price inflation last month in Lebanon of 269%. Such has surpassed 100% since the onset of Covid.
  • A 3-month high in Hong Kong’s consumer price inflation of 2.1% in April after back-to-back readings of 1.7% in the prior two months.
  • A 23-month low in Polish producer price inflation last month of 6.8%, down 10.3% in March, 20.5% in December, and a 323-month peak of 25.6% in mid-2022.
  • A 17.3% year-on-year rate of PPI inflation last month in Moldova, down from a 269-month high of 34.9% last October and 25.3% in April 2022.
  • Estonian PPI inflation slowed to a 26-month low of 4.2% in April from 7.9% in March, 16.6% last December and a 328-month high of 33.7% in March 2022.
  • Irish wholesale prices dropped 1.0% on month and by o.7% on year in April, marking the first 12-month decline in a year and a half.

Japanese machinery orders, which foretell how business spending is likely to evolve, fell short of expectations in both March and the first quarter. Core domestic orders dropped 3.9% in the latest month and posted just a 2.6% rise in the first quarter following a 4.7% drop in the last quarter of 2022. Export orders were 10.5% fewer than in both February and March 2022.

The People’s Bank of China’s one-year and five-year Loan Prime Rates were again left unchanged at 3.65% and 4.30%. They have been at those levels since reductions last August of 5 and 15 basis points, respectfully. The levels at the onset of the Covid pandemic had been 4.15% and 4.80%.

Swiss industrial production increased 1.5% in the first quarter, but the 3.4% advance from a year earlier was the smallest on-year increase in nine quarters.

Polish industrial  production plunged 14.8% on month and 6.4% on year (a 35-month low) in April.

With the ECB raising interest rates progressively, construction output in the euro area dropped in March by 2.4%, resulting in the weakest on-year change (-1.5%) in 19 months.

In elections over the weekend in Greece, the center-right ruling coalition did better than expected.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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