Ipek Ozkardeskaya
Swissquote Bank Ltd
The US 2-year yield fell sharply, while the S&P500 ended flat after hitting a fresh high since last summer on optimism that the US will finally agree to raise the debt ceiling.
The House will vote today to decide whether the debt limit bill gets approved at time to get a Senate approval by next Monday deadline. But the problem is that at least 20 conservative Republicans of the House rejected Kevin McCarthy’s compromise on debt ceiling, saying that spending cuts are not enough.
Any misstep at today’s House vote could send the US yields higher and stocks lower.
So far, there has been a widening gap between the way the stock and bond markets priced the threat of a US government default. And even the fact that the Federal Reserve’s (Fed) hawkish stance has a material impact on yields’ upside trajectory since the bank-stress dip, stock markets kept on climbing. But Nasdaq stocks are rate sensitive, and cannot be rate-hike proof if the Fed continues hiking the rates.
In energy, US crude tanked nearly 5% yesterday, and tipped a toe below the $69 pb mark on worries that Russia may not follow OPEC’s output cuts, in which case the internal conflict may prevent the cartel from reducing supply in a way to give a jolt to oil prices.
Elsewhere, the Chinese manufacturing PMI showed that contraction in activity accelerated in May instead of stepping back to the expansion zone. The faster Chinese manufacturing contraction also weighs on the sentiment this morning.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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