Market Update – May 17 – Wall Street extends losses on debt limit angst

The USDIndex held at 4-day highs. Stocks and Treasuries are lower on anxieties over the debt limit and hawkish Fedspeak. Disappointing data, a further deluge of corporate supply, and poor earnings added to the bearish pressures. Today across Asia and Europe stocks moved broadly lower. President Biden met with Congressional leaders but with no sign of results. The President will want to meet again upon his return from the G7.

FT: Executives from a wide range of leading businesses and investment firms warned a failure to raise the debt ceiling could have “disastrous consequences” for the US economy.

“We write to emphasise the potentially disastrous consequences of a failure by the federal government to meet its obligations,” the signatories wrote. “Absent a resolution, the government is likely to run out of money as soon as June 1. Action to end the pending debt crisis is necessary now.”

Overnight  Japanese economy rebounds on household spending recovery (GDP for Q1 at 1.6% y/y from -0.1%y/y).

  • FX USDIndex edged up to a high of 102.687 before closing at 102.613. EUR steady at month’s low, i.e. 1.0840. JPY failed to break 136.40. Sterling steady for 3 days at 1.2450-1.2530.
  • Stocks – The US30 tumbled -1.01% with nearly across the board weakness, but paced by a -2.35% drop in energy. The US500 was off -0.64% and the US100 slid -0.18%. A miss by Home Depot exacerbated worries over the resilience of the economy. #HomeDepot (-2.15%) warned on profits as demand falls. #Pfizer (-0.40%) raised $31bn in historic bond sale to fund Seagen deal. #BlackRock (-1.69%) to cut remote work to one day a week.

  • Commodities – USOil – held lower at $70.20 per barrel, as China’s data fell short of expectations, adding to signs that the expected bounce in energy demand will take longer to materialize than anticipated. IEA data showed that Russia’s oil exports continue to rise. Revenues still dropped 27% y/y in April, despite the expansion, highlighting that Russia has to accept heavy discounts as it finds new buyers and routes. Almost 80% of the country’s crude shipments now flow to China and India, according to the IEA.
  • Gold broke 2000 barrier and extended to 1986.60.
  • Cryptocurrencies BTC steady within $26600-27600.

Today US president Joe Biden will head to the G7 in Hiroshima today, but may scrap planned stops in Papua New Guinea and Sydney to deal with debt ceiling talks. EU Inflation, BoE Bailey speech.

Biggest FX Mover @ (06:30 GMT) VIX (+5.08%). Gapped up to 20.57 from 18.00. MAs flattened currently, but MACD histogram & signal line remain well above 0, RSI 81 & flat. H1 ATR 0.37, Daily ATR 1.46.

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Andria Pichidi

Market Analyst

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