The negotiations to raise the U.S. debt ceiling were put on hold. Dems pointed the finger at the GOP. The GOP pointed the finger at the Dems. Pres. Biden comes back from the G7 over the weekend, and I am sure both sides, know what is at stake. Nevertheless, the development alarmed market participants as they headed into the weekend. Initially, yields moved off high levels as focus was on expected lower growth. The dollar moved lower. Gold rebounded. Stocks slid. However, moves were somewhat limited.
Meanwhile (and at the same time), Fed’s Powell was participating in a panel discussion with former Fed Chair Bernanke. Powell picked his words closely and covered most bases in the process. Powell suggests that due to tightening bank credit conditions, policy rates might not need to rise as high as might otherwise be expected. Nevertheless, he notes that market pricing suggests a different rate path than the Fed, presumably anticipating a more rapid decrease in inflation. However, he maintains that current data support the view that reducing inflation will take time. He also highlights the inclusion of risk compensation in market prices (lowering rates below what even analysts expect). Finally, Powell states that while the Fed has not yet determined whether rates are sufficiently restrictive (inflation is still too high), the objective is to reach a sufficiently restrictive policy stance. The Fed hasn’t decided on how much more tightening might be necessary, but Powell suggests that the balance between doing too much and too little is becoming more evenly balanced.
After the dust settled, and the events were over, the US stocks are ending the day modestly lower. Yields are ending higher, but close to the middle of the ranges. The USD is ending the day as the weakest of the majors (despite higher rates) but off the lowest of levels.
Looking at the strongest to the weakest rankings, the NZD and the CHF are ending as the strongest of the majors. The USD and the CAD are the weakest.
For the trading week, the USD is closing mixed with the USD moving the most to the upside vs the JPY, but falling vs the NZD. The USDs changes showed:
- EUR +0.40%
- JPY, +1.51%
- GBP +0.06%
- CHF +0.11%
- CAD, -0.46%
- AUD, -0.09%
- NZD – 1.37%
The price of oil rose 2.61% which benefitted the CAD (the USD fell -0.46% vs the CAD). Gold meanwhile fell -1.67% this week. The move lower did not hurt the AUD (it ended little changed vs the greenback). The USD rose modestly versus the EUR by +0.40%. Overall, the dollar index (DXY) rose by 0.47%.
For US stocks this week:
- Dow rose 0.38%
- S&P rose 1.65%
- Nasdaq rose 3.04%.
In the US debt market, yields moved higher this week with the 2-year having its biggest week move since September 2022. The 10-year is ending the week up the most since February.