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US debt dispute further defused - next Fed interest rate decision moves into focus

The ongoing political balancing act in the dispute over raising the debt ceiling in the US on the one hand and the uncertainty about the next step of the US Federal Reserve on the other hand continue to cause nervousness on capital markets. However, the bill to suspend the debt ceiling cleared a crucial hurdle overnight and should provide relief on financial markets. Meanwhile, the next interest rate decision by the US Federal Reserve is approaching and it remains unclear whether the Fed is ready for an interest rate pause.

Alessandro Fezzi, LGT
Reading time
5 minutes
US debt limit
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In Washington, a bipartisan majority in the US House of Representatives approved the Fiscal Responsibility Act bill, which would suspend the debt ceiling until 2025. The Senate still has to approve it and US President Joe Biden has to sign the bill. Senate Majority Leader Chuck Schumer said the Senate would do "everything in our power to pass the bill quickly".

Stock markets in the Asia-Pacific region subsequently rose for the most part on Thursday. In Tokyo, the Nikkei 225 posted a daily gain of 0.3%. The Hang Seng Index in Hong Kong recovered and gained around 0.5%. Indices in mainland China also rose, with the Shanghai Composite up 0.15% and the Shenzhen Component up 0.55%.

On Wall Street, however, the stock indices still posted losses on Wednesday. The background to this was tension before the vote on Capitol Hill and the uncertainty as to whether the US Federal Reserve could dare to make another interest rate move based on solid labour market data or whether it would pause. The disappointing economic data from China published the day before also had an impact. The Dow Jones Industrial closed 0.41% lower at 32,908.27 points, down 3.5% for the month. The S&P 500 lost 0.61% on Wednesday, ending the session at 4,179.83 points. On the Nasdaq, the Nasdaq 100 fell 0.70% but posted a solid gain of 7.6% over the month of May. Since the beginning of the year, the technology index has even risen by around 30%, driven by the euphoria surrounding A.I. and the price fireworks at the chip company Nvidia. On the bond market, the yield on ten-year US government bonds fell to 3.64%.

According to the US Federal Reserve's regular economic report, the so-called Beige Book, the American economy has recently stagnated. Companies surveyed by the Fed were somewhat more pessimistic about the economic outlook. Meanwhile, Federal Reserve Vice Chairman Philip Jefferson hinted that the Fed could leave the key interest rate unchanged on 14 June. Jefferson cautioned, however, that this does not necessarily mean that the peak in the current interest rate cycle has been reached.

The euro was weighed down by the latest data from the euro area, which confirmed a slowdown in price increases in the major eurozone countries. In Germany, France and Spain, inflation fell more than expected in May. In Germany, the annual rate of 6.1%, down from 7.6% in April, was the lowest in more than a year. At 6.0% (previous month 6.9%), the French inflation rate also fell to its lowest level in a year.

Corporate news in focus: Remy Cointreau annual figures and Dell Technologies Q1 figures.

Economic data in focus: Germany Retail Sales April (08:00 CET), Purchasing Managers' Indices Industry from Spain, Italy, France, Germany, the Eurozone, Switzerland, and the UK (from 09:15). Eurozone Consumer Prices May (11:00), USA ADP Employment Growth May (14:15), Initial Jobless Claims (14:30), S&P Global Industrial Purchasing Managers' Index for May (15:45), ISM Industrial Purchasing Managers' Index May (16:00).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi
Quelle: LGT Bank (Schweiz) AG
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