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USD

24 May 2023

Debt ceiling jitters increase

Surprising precisely no one, US politicians appear no closer to resolving the debt ceiling debacle, and evidence of stress is emerging across a range of previously-immune asset classes. One-month Treasury yields are above levels reached ahead of the 2008 global financial crisis, equity markets are down, and the dollar is catching a sustained bid as investors prepare for an 11th-hour deal – or a technical default – that triggers a short-lived worsening in liquidity conditions. Republican House Speaker McCarthy yesterday said “We are not putting anything on the floor that doesn’t spend less than we spent this year,” but is pushing...

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23 May 2023

US debt ceiling: deal or no deal?

• US debt ceiling. Lack of progress has weighed on risk sentiment. US equities fell overnight and the USD added to its recent gains.• Two-speed economy. Manufacturing PMIs in ‘contractionary’ territory, while services remain robust. The former is a negative for commodity demand & the AUD.• RBNZ in focus. Another RBNZ hike expected today. The debate is around how big it could be (25bps or 50bps)? AUD/NZD is sub 1.06. US debt ceiling negotiations continue to hog the headlines and the lack of progress has weighed on risk sentiment. Equity markets lost ground with the US S&P500 falling by 1.1%....

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23 May 2023

Chartbook: May 23

Exhibit 1 The Treasury is running out of cash. Treasury General Account cash balance, billions USD Exhibit 2 Market distortions are emerging. May 30 and June 1 Treasury bill yields, % Exhibit 3 UK prices are set to roll over. Annual change in consumer price indices, % Exhibit 4 The global terms of trade shock has almost fully reversed. Citi Terms of Trade Indices, % change from January 3, 2020 Exhibit 5 Economic surprise indices are turning against the euro. Citi Economic Surprise Indices Exhibit 6 And gains are starting to unwind. Nominal effective exchange rate indices, % change from...

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23 May 2023

Markets count down to debt ceiling deal

Markets are stuck in a state of suspended animation after President Biden and House Speaker McCarthy emerged from last night’s talks without a deal to raise the US debt ceiling. According to Biden, the two leaders agreed that a “default is off the table,” and McCarthy said “The tone tonight was better than any other time we have had discussions”. McCarthy called the talks “productive” but said “we don’t have an agreement yet,” with both noting that differences over tax changes were lengthening the standoff. An earlier statement from Treasury Secretary Janet Yellen said “we estimate that it is highly likely...

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22 May 2023

US debt ceiling still in focus

• US debt ceiling. Talks are set to restart today. A deal is needed to be agreed quickly given the ‘x-date’ is fast approaching.• Fed pricing. Markets pricing in a chance of a June Fed hike, but are still looking for ~2-3 cuts by January. An unwind of these bets could be USD positive.• AUD holding. Limited local data flow. Global events will drive the AUD near-term. AUD/NZD sub 1.06. Tomorrow’s RBNZ meeting is in focus. It has been a quiet start to the new week with limited moves across markets as participants await the latest round of US debt...

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