From one river to another. U.S. money market funds hit a record $5.8 trillion as investors pursued higher yields in short-term debt securities. Despite debt ceiling concerns, these funds have seen significant inflows of $614.8 billion this year, with $48 billion added in the past week. Investors now prefer money market funds over bank deposits due to factors like higher interest rates and recent bank collapse. However, regional bank stocks are also finding relief as deposit flows stabilise, with a modest decrease in deposits compared to previous turbulent months. Analysts believe the banking system is sound overall, and negative news affecting individual banks is seen as specific to those institutions and not a widespread contagion as claimed by some.
Wall Street stocks closed sharply lower as concerns grew over the lack of progress in U.S. debt limit talks. Short-term Treasury yields spiked, reaching record highs, while investors awaited the Fed's meeting minutes to assess the central bank's stance on interest rates. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all recorded declines, with market participants expressing worries about a potential U.S. debt default and its implications for economic growth.
Gold prices paused their rally as the market awaited progress in U.S. debt ceiling negotiations and a global manufacturing slowdown, particularly in China. Uncertainty surrounding a potential U.S. debt default and weaker-than-expected purchasing manager index readings contributed to the safe-haven appeal of gold.
Oil prices rose as U.S. oil and fuel supplies tightened and the Saudi energy minister warned speculators, suggesting the possibility of more OPEC+ output cuts. API reported that crude inventories fell by 6.8 million barrels, gasoline inventories dropped by 6.4 million, and distillate inventories declined by 1.8 million. Supply cut expectations were offset by discussions on the U.S. debt ceiling, which limited oil price gains.
The U.S. dollar reached a two-month high over unresolved US debt limit talks. Additionally, better-than-expected economic data, including a surge in new home sales and a rise in the S&P Global Composite PMI Output Index, coupled with hawkish comments from regional Federal Reserve presidents, raised the possibility of further interest rate increases, supporting the strength of the greenback. Traders are closely watching for any signs in the upcoming Federal Reserve meeting minutes regarding a potential pause in rate hikes next month.