Indications that a Debt Ceiling Deal Will Be Reached in Time
May 26, 2023
While no deal has been attained yet to raise the U.S. debt ceiling, both sides of the discussions are expressing optimism, and investors are anticipating that the U.S. will not default. That’s why equities are higher, but the 10-year U.S. Treasury yield is also up two basis points to an 11-week high after the release of the U.S. personal income and consumption expenditures data for April. Personal consumption expenditures jumped 0.8% on month and by 0.5% adjusted for inflation. Both rises beat expectations and were associated with higher inflation. The Fed’s preferred PCE price deflator rose 4.4% year-on-year, up unexpectedly from 4.3% in March. Excluding food and energy, core inflation also ticked higher to 4.7%. Personal income climbed 0.4% on month, and the savings rate of 4.1% was at a 3-month low. These figures leave fed officials little choice but to err on the side of more monetary restraint.
Among other U.S. economic data reported this Friday,
- Orders for durable goods, which had been expected to drop in April, instead advanced 1.1% on top of the prior month’s 3.3% rise.
- The U. Michigan-compiled U.S. consumer sentiment index was revised upward to a reading of 59.2 from 57.7 reported earlier. That’s still a 6-month low.
- The U.S. merchandise trade deficit unexpectedly widened 14.4% in April to $96.8 billion, as exports slumped 5.5% on month while imports grew 1.8%.
In financial market activity overnight, the dollar, rose 0.2% against the yen and kiwi but fell 0.2% versus the Chinese yuan and sterling. The dollar is steady against the Swiss franc and euro. Greater dollar swings, -0.9% and +0.5%, have been experienced against the Mexican peso and Turkish lira. Stock markets dropped 1.9% in Hong Kong and 1.1% in New Zealand but rose 1.3% in Taiwan and 0.4% in Japan, and they show gains of 0.6-0.9% in Germany, the U.K., France and the United States so far. The price of oil climbed 1.2%.
Excluding food and energy, core consumer price inflation in Tokyo, which is a leading indicator for the national trend, advanced to a 493-month high in Mary of 3.9%. Japan’s indices of leading and coincident economic indicators for March were each revised marginally higher.
British retail sales grew by a faster-than-projected 0.5% in April but fell on year by 3.0%, which was their 13th sub-zero result in a row. Retail sales in Sweden rebounded 2.8% in April, reducing their year-on-year drop from a record 10.8% in March to 6.5%. In Norway, retail sales declined 1.2% on month and by 6.4% from a year earlier in April. Australian retail sales stagnated on month in April and recorded a smaller 4.2% 12-month rate of increase.
Among price data reported today,
- Icelandic CPI inflation slowed 0.4 percentage points to a 6-month low of 9.5% in April.
- Swedish producer prices dropped 1.0% on month and rose only 1.3% on year in April. That’s the smallest 12-month increase in 40 months and down from a record high of 25.6% last June.
- Malaysian CPI inflation of 3.3% in April was its lowest since May 2022 and down from 4.7% last August.
Austria’s manufacturing purchasing managers index fell 2.3 points in May to 39.7, signifying the fastest rate of contraction in 37 months.
In Italy, factory sector business sentiment dropped in May to a 7-month low, while consumer confidence fell back from April’s 14-month high to a 2-month low.
French consumer confidence remained unchanged last month with a reading of 83. It’s been at that level or 82 for six straight months.
Mexican GDP growth last quarter was revised marginally lower to gains of 1.0% from 4Q 2022 and 3.7% from the first quarter of 2022.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, French consumer confidence, U.S. goods trade deficit, U.S. personal consumption and PCE price deflator
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