Markets await another round of debt ceiling negotiations

Uncertainty over the debt ceiling negotiations weighed on US equities Friday, but all major indices were still higher for the week.  Separately, Federal Reserve Chairman Jerome Powell said the country’s recent bank troubles could mean interest rates might not have to rise as much as previously thought.  Early in the session, the S&P 500 briefly touched its highest level since mid-August before turning south after Republican lawmakers walked out of debt ceiling talks with the White House.  Nevertheless, the S&P 500 was still up 1.6% for the week and 9.2% so far this year.  Elsewhere in Europe, shares continued to rise, with the Euro Stoxx 50 Index closing at its highest level since November 2007. 

Summary for 22.05.2023 

• Most Asian equities were mixed on Monday as optimism over a potential improvement in US-China relations was largely offset by uncertainty over raising the US debt ceiling as negotiations to avoid a default continued.  President Joe Biden said during the Group of Seven summit in Japan that he expects relations between the US and Beijing to improve “very shortly” and that the G7 had also decided on a united approach to China.  Shares in Japan, Hong Kong and mainland China advanced, while Australian equities declined. 
• European and US equity markets are seen heading for a cautious open as investors remain focused on tense US debt ceiling negotiations.    
• Oil prices retreated in early Asian trade this morning, extending losses into a third session as markets awaited more progress in negotiations over the US debt ceiling, while focus also remained on potential supply disruptions in North America. 

• Debt-limit negotiators resumed discussions in Washington ahead of a meeting on Monday between President Joe Biden and House Speaker Kevin McCarthy, as time grows short to avert a US default and investors are girding for more volatility in markets.  Treasury Secretary Janet Yellen said earlier Sunday that the chances the US can pay all its bills by mid-June are “quite low”, while Goldman Sachs economists estimated that the Treasury Department will by June 8 or 9 see its cash levels drop below the $30 billion it’s signalled as a bare minimum for meeting federal obligations falling due. 
• China delivered the latest salvo in an escalating semiconductor war with the US, announcing that Micron Technology products have failed to pass a cybersecurity review in the country.  The move brings fresh uncertainty to the other US chipmakers that sell to China.   
• Greek Prime Minister Kyriakos Mitsotakis pummeled is opposition in Sunday’s national election, moving a step closer to getting another four-year term and sending a signal to markets that the premier’s investment-friendly policies will continue.  Mitsotakis’s centre-right New Democracy received almost 41% of the vote compared to about 20% for the leftist Syriza part of former premier Alexis Tsipras.  The premier fell short of the threshold to immediately form a government on his won, meaning he will likely opt for another ballot in about a month rather than try to form a coalition.