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CPI and Talks on US Debt Ceiling in Focus

Miguel A. Rodriguez
Miguel A. Rodriguez
10 May 2023

Markets await CPI results to see if Fed’s actions have affected inflation and outcome of talks on US debt ceiling. If it is put up US dollar could suffer. 

Due to the UK vacation and the upcoming release of the April CPI report on Wednesday, the week's most important economic data, US equities had modest volatility on Monday. 

Investors will closely monitor the CPI report to determine whether the Federal Reserve's (Fed) rate increases are having the desired impact. Analysts predict that prices will increase by 5% from the same month last year, maintaining the previous month's pace but still exceeding the Fed's goal rate of 2%. 

In any case, the Fed raised rates by another quarter of a percentage point last week, and the futures market predicts that it will stop hiking rates at its meeting in June. Only a significant departure from expectations in the CPI data might cause this market projection to change. 

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On Friday, as concerns about the banking system started to subside, shares of regional banks such as PacWest Bancorp and Western Alliance Bancorporation saw a rise. Western Alliance rose 3.1% and PacWest increased by 20%. 

In reality, many analysts and investors still worry that the banking crisis will worsen, but for the time being, the market does not appear to be significantly affected, especially since corporate earnings for the first quarter are exceeding analysts' expectations, especially those of technology companies

This week also sees the release of reports on producer pricing, new unemployment claims, and consumer confidence. 

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The worry that the US government won't be able to raise its debt ceiling increases as the month goes on. On similar situations in the past, a deal was eventually found to prevent non-payment, but if a speedy resolution is not achieved, the uncertainty will worsen. 

Today's White House meeting between President Joe Biden and congressional leaders is expected to centre on disagreements over raising the debt ceiling, which Congress must do in order to prevent the US from defaulting on its debt. 

If it happens, it would be a historically rare occurrence that could be negative for treasury bonds, the US Dollar, and would tempt investors to acquire gold.   

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Sources: Bloomberg, Reuters 

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.