Happy Memorial Day! Freedom has never been freer, just like the money that the government can spend. Republicans and Democrats have agreed on raising the debt ceiling until 2025, avoiding a political issue until after the 2024 election. The bill includes a spending freeze for domestic programmes, minor changes to clean energy funding, additional IRS funding, an end to the student loan payment freeze, tighter restrictions for SNAP recipients, and expanded food benefits for the homeless and veterans. The House will vote on the bill, followed by the Senate, and it is expected to be signed by President Biden. Treasury Secretary Janet Yellen's warnings of default by June 5th are nothing but an overly dramatic reaction to the situation.
US markets were closed, but Asian investors were cautious as they monitored the US debt ceiling negotiations in Washington. The markets were shaky, with gains in certain Asian markets and declines in others. Liquidity concerns and upcoming US job data continue to be factors of concern. Analysts anticipate a rate hike in June and rule out rate cuts by year's end.
Gold prices fell to over two-month lows as optimism over a debt ceiling deal and expectations of more interest rate hikes by the Federal Reserve boosted the dollar. The agreement to raise the debt ceiling reduced uncertainty and improved risk appetite, further shifting capital away from gold. The focus is now on U.S. economic cues, including nonfarm payroll data, to gauge the Fed's future reaction.
Oil prices experienced a decline on Tuesday, reversing earlier gains, as concerns regarding potential interest rate hikes by the Federal Reserve and a slowdown in economic growth overshadowed optimism surrounding the increase of the U.S. debt ceiling. Traders maintained a cautious stance while eagerly anticipating economic signals from China, particularly the forthcoming release of crucial manufacturing and service sector data for May.
The U.S. dollar slightly declined against major currencies but remained close to a two-month high after a deal on the U.S. debt ceiling improved risk sentiment. However, the agreement faces challenges in Congress, with some Republican lawmakers opposing the raise. The uncertainty surrounding a potential U.S. government default will persist until the deal is passed into law, while expectations of Federal Reserve rate hikes are likely to support the dollar in the near term.