General Market Analysis 25/05/23

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Debt Ceiling Concerns Continue to Weigh on Markets

Global markets continued to fall over the course of the trading day yesterday as concerns about a lack of progress on the US government debt issue picked up pace. Rating agency Fitch fired a warning over the US government’s bows, advising that they have moved the states down a notch and placed it on ‘Watch Negative’ considering the possibility of a default. All major US indices dropped yesterday by 0.77%, 0.73% and 0.61% for the Dow, S&P and Nasdaq respectively. The dollar continued to appreciate on its haven basis with the Kiwi a notable loser after the RBNZ raised a final time and signaled that it was done for now. US treasury yields ticked higher again with those due for repayment on June 1 – default X date – surging over 7%.

US Debt – The Only Game in Town

Investors are starting to get bored of the continual reference to the US debt ceiling issue, but it is currently the only game in town. The possibility of a default is now turning into a real concern for markets, and they are starting to react but there could be a long way down to go if it does come into a realization. Rating agencies are starting to take notice, which was a catalyst for the big downside move back in 2011. Clearly, the other side of the trade is still a possibility and expect a good relief rally if a deal – or in the short term, signs of a deal – do come to fruition. But in the meantime, the risk seems firmly placed to the downside.

Quiet Day Ahead of the US Session

Traders are preparing for a relatively quiet day ahead in the Asian and European sessions as we are once again looking to the US for fresh input in the global economic story. Markets are set to start well on the back foot after another tough US session and further uncertainty on the US debt situation but there is little on the calendar for either of the first two sessions to stop that sentiment. Investor focus will be on the debt issue once the US session gets going but there is also the small matter of the latest US GDP data to be released along with the weekly unemployment claims data. The expectation is for a 1.1% print for the q/q GDP number and 249k new unemployment claims.