21 May 2023 (MLN). During the past week, there were significant events and developments in the global financial markets, especially in the USA. The following is a summary of the main highlights.
US debt ceiling negotiations
The US debt ceiling has continued to be a hot topic in financial markets over the past few weeks.
The debt ceiling refers to the legal limit on the maximum amount of national debt that the US Treasury is authorized to accumulate.
As of now, the total US debt is about $31.4 trillion, to put that into context, or about $94,000 per American.
Earlier, US Treasury Secretary Janet Yellen warned that the United States could run out of money to pay its bills by June 1 unless Congress raises or suspends the debt ceiling.
Debt ceiling talks have heated up over the past few weeks.
There have been no positive results from several different meetings this week.
Concerns about a potential default have had a significant impact on markets. The United States recently faced the need to offer debt at historically high interest rates.
Recent developments on the issue
US President Joe Biden said on Sunday that he had done his part in debt negotiations with a spending-cutting proposal, but stressed that much of what Republicans are proposing is unacceptable.
Biden has firmly stated that he will not agree to the proposal of tax benefits for the oil industry.
Voicing his commitment to fiscal responsibility, Biden asserted: “I’m ready to cut spending,” but he also emphasized the need to study tax revenues.
Biden acknowledged the possibility that Republicans could force a default through egregious action, though he could not guarantee otherwise.
While considering the options, Biden revealed that he is exploring using the 14th Amendment to raise the debt ceiling, expressing his belief that he has the authority to invoke the 14th Amendment on the issue.
The important question remains whether it can be used in time to prevent default.
US Fed Powell. inflation remains a serious problem
Speaking at a panel discussion on Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation is well above the Fed’s 2% target and is posing significant challenges to the economy.
However, he said the Fed was firmly committed to returning to its target and would adjust its policy if necessary.
Powell said there could be more supply shocks that could push prices higher, but he added that it was difficult to predict their timing and size.
He added that interest rates may not need to rise as much as in previous cycles given the low level of credit stress in the economy due to the recent banking crisis.
Notably, Powell notes that financial markets are pricing in a different rate than the Fed’s projections.
Elaborating on the point that recent data showed that inflation will take time to ease, he said the Fed had made no decision on whether interest rates were “restrictive enough.”
master data release
The number of Americans filing new claims for unemployment benefits fell more than expected last week, falling by 22,000 to 242,000.
UK consumer confidence rose for the fourth month in a row in May, reaching its highest level since Russia’s invasion of Ukraine, according to a GfK survey.
An index tracking consumers’ views on whether this is a good time to make a big purchase also rose four points to -24. However, confidence remained below zero, reflecting pessimism among consumers amid high inflation and geopolitical tensions.
The U.S. stock market index S&P 500 ( SPX ) closed the week with a 1.65% jump to $4,191.99, while the Nasdaq technology index ( NDX ) rose significantly by 3.47%.
The US Dollar Index (DXY) finally slowed its gains amid US debt ceiling concerns, closing the week up 0.47%.
Spot gold closed at $1,977.3, down 1.67% for the week.
Notably, this is down 5% from the new all-time high it hit a few days ago before seeing a sharp selloff.
On the other hand, international spot silver closed the week at $23.84, registering a weekly decline of 0.49%. However, spot silver returned 1.58% on the final day of the week to pare the weekly decline somewhat.
Meanwhile, Brent crude and West Texas Intermediate (WTI) both found some supportive ground after four straight weeks of declines, closing up 2.26% and 2.58% respectively for the week.
These developments reflect the dynamic nature of global financial markets and the potential impact on various sectors and economies around the world.
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