US Debt Ceiling Deal Reached, but Fallout Puts Credit Rating in Limbo
US President Joe Biden and top congressional Republican Kevin McCarthy have reached a tentative deal to raise the federal government's $31.4tn debt ceiling for two years, ahead of a June 1 deadline set by the Treasury Department.[0] The deal lacks support from some factions at the extreme left and right of the political spectrum, due to the compromises each party had to make to reach the agreement.[1] The debt ceiling deal needs to pass through the House on Wednesday and the Senate by June 5 to avoid a potential ‘catastrophic' default, and optimism surrounding the deal has been fading, putting downward pressure on the EUR/USD pair. Meanwhile, Treasury yields moved higher, with the 10-year yield rising to 3.72% and the two-year yield spiking to 4.36%, making the yield curve more inverted.[2] Investors are rethinking how long interest rates will continue to rise, with the odds of a Fed rate hike next month jumping to 70%.
Chip stocks have been rallying, with Marvell Technology reporting Q1 net revenue above consensus and projecting fiscal 2024 artificial intelligence revenue to “at least double” from a year ago.[2] Workday also reported Q1 subscription revenue above consensus and raised its 2024 subscription revenue estimate.[3] In addition, Ford Motor announced it had entered into a pact with Tesla that will allow Ford electric vehicle customers to access more than 12,000 Tesla Superchargers across the US and Canada starting in spring 2024.[4]
The US debt ceiling crisis has been averted for now, but the fallout has put the country's credit rating in limbo.[5] European Central Bank policymaker Boris Vujčić has said that inflation momentum in the Eurozone is still persistent, particularly in core and food components, while ECB Chief Economist Philip Lane has said there is no sense of certainty in terminal rate.[1]
In commodities, bonds and crypto, West Texas Intermediate crude oil rose to $73.39 a barrel, while the yield on the benchmark 10-year Treasury note settled at 3.717%.[6] Meanwhile, cryptocurrencies continue to fluctuate, with Bitcoin trading at around $37,000.
US stock markets were closed on Monday in observance of Memorial Day, but other exchanges around the world remained open.[7] The debt ceiling deal still needs to be approved by Congress, and if it fails to pass, the US could run out of funds to pay its bills as early as June 1.
0. “Media Stocks, Broader Markets Dip On Debt Ceiling Jitters, And It Could Get Worse” Deadline, 23 May. 2023, https://deadline.com/2023/05/media-stocks-markets-debt-ceiling-default-risk-1235377482/
1. “EUR/USD retreats towards 1.0700 despite initial US debt ceiling deal, US NFP, Eurozone inflation eyed” FXStreet, 28 May. 2023, https://www.fxstreet.com/news/eur-usd-retreats-towards-10700-despite-initial-us-debt-ceiling-deal-us-nfp-eurozone-inflation-eyed-202305282233
2. “Rates rethink, US debt talks send stocks down for the week” CNA, 26 May. 2023, https://www.channelnewsasia.com/business/stocks-limp-toward-us-debt-denouement-japan-sparkles-3516716
3. “Markets Today: Stocks Slightly Higher on Signs of Progress in Debt Ceiling Talks” Barchart, 26 May. 2023, https://www.barchart.com/story/news/17224166/markets-today-stocks-slightly-higher-on-signs-of-progress-in-debt-ceiling-talks
4. “Stocks Climb On Signs Of Progress In Debt-Limit Talks” Barchart, 26 May. 2023, https://www.barchart.com/story/news/17227835/stocks-climb-on-signs-of-progress-in-debt-limit-talks
5. “Possible default threatens foundation of global financial system” The Washington Post, 27 May. 2023, https://www.washingtonpost.com/business/2023/05/27/debt-default-financial-system-wall-street/
6. “Stock market news today: Fed minutes show split on more rate hikes” Markets Insider, 24 May. 2023, https://markets.businessinsider.com/news/stocks/stock-market-news-fed-minutes-split-more-interest-rate-hikes-2023-5
7. “Stock Market Today: Stocks Jump on Debt Ceiling Progress” Kiplinger's Personal Finance, 26 May. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-stocks-jump-on-debt-ceiling-progress
