Debt ceiling continues to dominate financial news

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Published Date 5/22/2023

Nothing this week tops the debt ceiling talks. Biden and McCarthy scheduled to meet today to move the process forward. Treasury rates began a little higher as safety remains in play ahead of a possible agreement by the end of the week, that is wishful thinking. The GOP lowered demands on spending caps but still seeks a multi-year deal plus a large increase to defense spending. According to the news, Biden called McCarthy on his way back from Japan, McCarthy called the call “productive”.

More information from Janet Yellen saying by June 15th the well would be dry. Goldman economists said they see the Treasury’s cash levels below the bare-minimum $30 billion mark by June 8 or 9, or sooner. They assigned a 30% chance of a deal this week and the same odds “shortly before” the deadline. Given the outlook that Treasury can hold on until mid-June will likely allow continued discussions. Not predictable to know when the politicians will end this problem; if Goldman’s assessment would turn out to be accurate the debt ceiling would get done about the same time of the FOMC meeting on June 13th and 14th.

Minneapolis Fed Pres Kashkari “I think right now it’s a close call, either way, versus raising another time in June or skipping. What’s important to me is not signaling that we’re done,”… “If we were to skip in June that does not mean we’re done with our tightening cycle, it means to me we’re getting more information. Do we then start raising again in July, potentially?” Last week in a panel discussion that included former Fed chair Ben Bernanke Jerome Powell signaled a pause in June to let the recent swift rate increases to filter into the economy. In Europe, European Central Bank President Lagarde repeated that the governing council has not finished raising rates yet.

There isn’t any economic data today, this week’s key data doesn’t come until Friday when the PCE (personal consumption expenditures) will be released. Through the week April new home sales tomorrow and Thursday April pending home sales. Fed officials out today, James Bullard, St. Louis Fed Bullard at 8:30 am (nothing yet from his remarks), San Francisco’s Daly at 11 am, at 11:30 am Atlanta’s Bostic and Richmond’s Barkin.

At 9:30 am the DJIA opened -15, NASDAQ +9, S&P +2. 10 year at 9:30 am 3.70% +2 bp. FNMA 6.0 30 year coupon -8 bps and unchanged from 9:30 am Friday; the 5.5 30 year also -8 bps and +6 bps from 9:30 am Friday.

US financial markets focused on the debt ceiling and the Fed officials speaking today. After Powell essentially put his imprimatur on a pause last week whatever comes from other Fedsters doesn’t carry a lot of weight There will be conjectures that the FOMC vote may not be unanimous although it most likely be a 100% agreement, can’t have dissension at the Fed now.

Markets should remain quiet today; no data and nothing coming from the debt ceiling that traders can sink their teeth into. Inflation data on Friday, the Memorial Day holiday approaching. Technically the near-term outlook is negative.

This Week’s Economic Calendar:

Tuesday,

9:45 am May PMI Flash (manufacturing 50.0, services 52.6)

10 am April new home sales (670K from 683K)

1 pm 2 year note auction

Wednesday,

7 am weekly MBA mortgage applications

1 pm 5 year note auction

2 pm FOMC minutes

Thursday,

8:30 am weekly jobless claims (248K from 242)

Q1 GDP second look (+1.1%, personal consumption spending year/year +3.7%)

10 am April pending home sales (+1.1% from -5.2% in March)

1 pm 7 year note auction

Friday,

8:30 am April personal income and spending (income +0.4$ from +0.3%, spending +0.4% from 0.0%)

April PCE (month/month 0.3% from +0.1%, year/year 4.3% from 4.2%; core PCE month/month +0.3% unch from March, year/year 4.6% unch from March)

April durable goods orders (-1.1%, ex transportation -0.1%)

10 am U. of Michigan consumer sentiment index (58.0 from 57.7)

Source: TBWS

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