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  • Market Insights  >  Weekly Outlook

18 May 2023,06:21

Weekly Outlook

Debt Ceiling Optimism Overshadows Macro Data

18 May 2023, 06:21

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The dollar has hit a 7-week high after significant progress on the debt ceiling bill has been reached.

Macroeconomic data has taken a backseat as the U.S. nears its 1 June debt ceiling deadline as outlined by Treasury Secretary Janet Yellen. Unlike the hard data of economic releases, this is a political issue, and all eyes are on the outcome of talks between U.S. President Joe Biden and the Republicans in congress. 

Risk appetite has been boosted on confidence surrounding the government’s ability to pay its bills on time, especially with Biden and House Speaker Kevin McCarthy jointly expressing confidence that the American government will not default. 

Asset Classes Cheer Debt Ceiling Bill Progress

As a result, Wednesday’s economic data has been overshadowed, with generally inverse assets moving in tandem on the news.A lower-than-expected increase in building permits for April failed to put sufficient downward pressure on the dollar. The dollar index has surged to a 7-week high, moving to just below 103.

Crude oil has also overcome double headwinds of a surging dollar and a much higher-than-expected inventory build of 5 million against an expected draw of 920K. The black gold saw a rebound above the 72 area. 

The general optimism has also spread to bitcoin, which saw the cryptocurrency surge roughly 2% overnight. 

What’s Next?

Dollar strength is expected to continue on investors betting on the high chance that the U.S. will raise the debt ceiling, although significant volatility is to be expected until a decision has been put to law. However, it’s important to note that the wider inflation-interest rate narrative still remains. Thursday’s Initial Jobless Claims data is expected to show a decrease against last month; while the same day’s Existing Home Sales for April is expected to drop 0.14M to 4.30M.

Majority of punters (72%) are now betting on a pause on hikes, although, as previous Fed meetings indicate, the final decision will still be reliant on whether inflation eases up significantly. 

Investors are advised to look out for the speech by Fed Chair Jerome Powell on Friday, 19 May at 18:00 (GMT+3), where investors might find more clues on coming rate hikes. 

As a  friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.

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