US won’t default no matter the political noise.
The market turbulence is fuelled by the debt ceiling circus.
It's been breached in Dec 2012 and has been raised since then. 🧵
Macro Pulse Update 26.05.2023 brings you the debt ceiling episode as we approach the D day.
We look at 2 things:
🟡 Interest rate outlook
🟢 Debt Ceiling Situation
🟡Interest rate outlook
It might be looking favorable once more for the crypto market.
Given the uncertain economic outlook, Fed officials are discussing the possibility of pausing interest rate increases in their upcoming June meeting.
Fed would remain committed to addressing persistent inflationary pressures.
They have taken careful consideration into factors such as inflation progress and labor market strength.
The recent banking disturbances also contributed to the uncertain macro outlook.
That itself could lead to a credit crunch and is an important area that the Fed could not neglect.
We might see shorter business cycle this time with the aim of refraining from rate hikes in June. This give the Fed more timeis to gather and analyze fresh data while evaluating the impact of credit constraints.
However, we understand that interest rate hikes positively correlates with inflation increase.
So, we might be quickly back again with more rate hikes later on if the Fed raised the debt ceiling.
🟢Debt Ceiling Situation
The doomsday wil come in July. Thats when the treasury runs out of money.
Fed knows that this will come and very likely they will raise the debt ceiling once more because the US have not defaulted on its loans
With its powerful "credit card" it can spend however it likes with a, limitless credit line; by raising the debt ceiling.
This would allow it to spend more = print more = inflation = rate hikes
And here we go again...
What about previous debt ceiling event?
Looking at the debt ceiling drama of 2011. Gold outperformed all other assets.
But in actual fact, how many of us here are holding Gold in our portfolio? More likely we hold bonds. It may data from 2011 but...
...history always repeat. In a recent poll, gold was the obvious choice based on a Bloomberg survey.
Central banks have also been accumulating gold since Q3 2022. Its almost as if they saw it coming.
Exactly, what happened in 2011 debt ceiling crisis was that just 3 days after the US credit ratings were downgraded, the debt ceiling was raised.
Can we expect to see something similar in the coming days?
@APompliano shares his prediction which I am very aligned with.
It would image the market with an inflow of $1T in Tbills from the treasury.
With the already dried up liquidity from the bank crisis, it dries it up further.
