Weekly Market Updates / 1 week ago

The Axiom IFS Update 22nd May 2023


India will withdraw its highest denomination currency note from circulation, the central bank said on Friday. The 2000-rupee note, introduced into circulation in 2016, will remain legal tender but citizens have been asked to deposit or exchange these notes by Sept. 30, 2023.


All eyes are focused on Washington this morning as the drama continues between President Biden and Senate Republicans concerning the imminent breach of the US debt ceiling limit which could come as soon as next week if no agreement is reached in time. The limit on government borrowing needs to be raised by June 1 or Washington faces an unprecedented default on US debt. Such an eventuality could plunge global markets into turmoil and the US economy into recession. Janet Yellen, US Treasury secretary, on Sunday warned that if the debt ceiling is not raised soon, there will be “hard choices to make about what bills go unpaid”. Given the negative economic repercussions of a default, as well as the unpredictable political impact, Biden and congressional Republicans are still expected to ultimately reach an agreement.


The Pound struggled to push higher last week as gains were limited by variable sentiment regarding the Bank of England’s outlook ahead. Looking forward, UK inflation data due on Wednesday is expected to ease slightly but big rises in food prices may mean the overall number retreats more slowly than had been hoped. Inflation is expected to have fallen back into single figures in April with economists expecting the consumer price index to fall to 8.3% as the effects of energy price hikes a year ago drop out of the data. However soaring food prices are, according to the Resolution Foundation, overtaking energy prices as the biggest driving force of inflation and may result in inflation not coming down as fast as expected. Inflation readings will be a key data input for the next interest rate decision.


The U.S. dollar wobbled in early European trade this morning amid uncertainty surrounding the U.S. debt ceiling negotiations and after dovish comments from Fed chair Jerome Powell. Investors now await a key meeting later today between U.S. President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Negotiations between the two sides broke off suddenly on Friday with Republican negotiators walking out of the meeting. Although talks eventually resumed neither side cited any progress to leave the Dollar directionless. Recent economic data and comments from Federal Reserve members have (slightly) raised market expectations of a) further rate rises and b) a longer time before rate cuts. Both or either of these eventualities may help strengthen the dollar.


European stock and FX markets are expected to open the week in a cautious manner as negotiations surrounding the potential raising of the U.S. debt ceiling continue. Activity is likely to be limited as investors await more news from Washington with negotiations to avoid a U.S. default which would have a disastrous impact on the global economy are set to continue. Europe’s macro calendar is fairly light with May eurozone consumer confidence data and speeches from European Central Bank officials Luis de Guindos and Philip Lane the main highlights. These policy-makers are likely to point to further hikes ahead by the ECB after President Christine Lagarde stated on Friday that the central bank needs to keep interest rates high to curb inflation in the medium term, although on Sunday she rowed back on these comments which has reduced market expectations of a rate rise at the next ECB meeting in June.


The Canadian dollar was subject to increased volatility last week as cross-asset risk conditions shifted on each set of headlines stemming from debt ceiling discussions, while April’s inflation report reopened the door for another hike from the BoC early next month. When speaking after the publication of the Financial Stability Report, Governor Macklem was seen tempering expectations of another hike, instead placing emphasis on March’s national accounts data on May 31st. Nonetheless, with only second-tier data due out this week and nothing from the BoC scheduled in the calendar, the loonie’s fortunes are likely to be determined by the political impasse in Washington. This could result in either another volatile week, or in the absence of any developments, a less explosive one.


The price of gold rose slightly on Friday to bounce off a seven-week low at $1,950 but like most markets lacks direction this morning awaiting news from the US debt ceiling talks.


Equity markets started the week on a hesitant note as President Joe Biden and Republican House Speaker Kevin McCarthy prepared to meet Monday in a bid to iron out road blocks in debt-ceiling negotiations. Futures on the S&P 500 and the Nasdaq 100 seesawed around flat on Monday. In Europe, Greek markets were a bright spot after Sunday’s national election resulted in victory for Prime Minister Kyriakos Mitsotakis, signalling that investment-friendly policies will continue.


An eruption of memecoins and nonfungible tokens on the Bitcoin blockchain has reshaped the revenue profile of miners and stirred questions about how lasting the upheaval will prove to be.New software known as Ordinals paved the way for the NFTs and meme tokens to come to the network this year. The NFT and meme-token craze spurred record transactions and an ensuing fee windfall for miners, who run the computers underpinning Bitcoin. At one point in May, transaction fees made up over 40% of revenues, whereas miner income is usually dominated by the new Bitcoin they get for securing the blockchain.


Oil steadied in London as financial markets remained on edge while US lawmakers prepared for final negotiations to reach a deal on the debt ceiling. Brent crude traded near $75 a barrel after losing almost 2% over the prior two sessions. The global crude benchmark is down about 5% in May, heading for a fifth straight monthly loss in what would be the worst run since 2017. While leading forecasters like the IEA expect the market to flip into a sharp deficit, economic concerns in the US and China have made some money managers the most bearish in a decade.




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