Morning Analysis – Day X is approaching
Just days before the deadline and then, unless Congress raises the debt limit, the government will not be able to pay all of its obligations on time. Treasury officials are working to delay some payments beyond June 1.
Under the standby overdraft plan, federal agencies will send payment information to the Treasury Department no later than the day before the due date. This will be a change from the current system where agencies can submit payment files well before they are due. The Treasury Department processes them continuously, often ahead of schedule. The plan would allow the Treasury to make daily decisions about whether it can complete all payments the next day.
During the talks, Treasury officials also discussed the possibility of deferring payments until they had enough cash to cover the full value of the liabilities for the day. However, a final decision has yet to be made as to how the payments will be delayed. Treasury Secretary Janet Yellen has warned that the United States may not be able to make timely payments for all of its obligations as early as June 1 if lawmakers do not take action.
The plan discussed above with federal agencies does not specify whether the United States will be able to ensure timely payment of specific obligations. However, given the role of treasuries central to the global financial system, Treasury and Federal Reserve officials have discussed prioritizing debt service payments in the past. Yellen has said repeatedly that prioritizing payments may not be possible, and stressed that she and the White House must make tough choices if the debt ceiling is not raised in a timely manner.
And today, in addition to reports on the US administration’s preparations for a situation to come to the end of its commitments, we also have other publications planned. In the afternoon, US household income and expenditure dynamics will be released.
And with them, we will learn the value of the core indicator of personal consumption expenditures, i.e. the Fed’s preferred measure of inflation. At the same time, it is also planned to publish the dynamics of orders for fixed assets, and a little later we will receive the final May reading of the Consumer Confidence Index calculated by the University of Michigan.
Stock markets have been nervous lately, in part due to the growing tension over the aforementioned debt limit issue. Supply is in the foreground in the short term. This is evidenced by the fact that the reflections of the indicators are of poor magnitude. Supply activity remains strong and demand is in no rush to return to the market.
As a result, the DAX contract price stopped around the support at 15,750 points. It is only a stopping point, not the beginning of attempts to return to the main trend. This may raise concerns that this level will eventually not be able to sustain the market. As with the Dow Jones Industrial contract, it could not stop the decline at 33,000 points.
In the crude oil market, prices have stabilized in the middle of a predetermined range. The downside is that it happens after you try to break out of the range up. On the plus side, the price hasn’t fallen below the minimum. For WTI oil, the minimum is about $70 a barrel.
A drop below this level may be related to the resumption of the bearish trend in this market. In the case of the gold price, we are dealing with a falling stop around the next support level (1930-40 dollars per ounce). Currently, the reference level for bulls is the 1980 level. A price rise above this now may indicate an attempt to return to the main trend.
There was a slight wave of dollar weakness in the foreign exchange market. The price of the EURUSD rose to 1.0740. On the GBPUSD pair, this bounce is barely visible – an increase to 1.2335. AUDUSD is several pips away from 0.6500. USDCAD did not breach the April high and USDJPY halted its upward run at 140.00.