Weekly Digest: U.S. Inflation Cools, Debt Ceiling Crisis


5 minutes read

May 12, 2023

13/05/2023: U.S inflation cools for the 10th straight month but price pressures remain, Yellen warns of “economic catastrophe”, the Bank of England raises rates in its battle with inflation. And more.

13/05/2023: U.S inflation cools for the 10th straight month but price pressures remain, Yellen warns of “economic catastrophe”, the Bank of England raises rates in its battle with inflation. And more.

💡Quote of the week

U.S. debt default would ripple through the financial world, impacting “contracts, collateral, clearing houses, and affect clients definitely around the world.” - JPMorgan Chase CEO Jamie Dimon

Investment news

The Federal Reserve building

📉 It’s going down. The U.S. inflation rate eased to 4.9% in April, but less than expected by economists. (CNBC)

Last month, the consumer price index increased by 0.4%, mainly due to higher prices in housing, used vehicles, and gasoline. This rise aligns with the expectations of Wall Street.

📈 Tech stocks go up. The Nasdaq Composite ended the day with gains on Wednesday as investors turned to technology stocks following an inflation report that was tamer than anticipated. (CNBC)

The tech-heavy index, the Nasdaq Composite, closed at 12,306.44, marking a 1.04% increase. The broader market, represented by the S&P 500, also saw gains of 0.45%, closing at 4,137.64. Meanwhile, the Dow Jones Industrial Average experienced a slight decline of 0.09%, or 30.48 points, ending the day at 33,531.33.

🇬🇧 🏦 U.K.'s battle with inflation. The Bank of England raised its key interest rate by a quarter of a percentage point, bringing it to 4.5%. Governor Andrew Bailey emphasized the British central bank's commitment to "stay the course" in its efforts to tackle the highest inflation rate among major economies. (Reuters)

The Bank of England has revised its expectations regarding inflation, which remained above 10% in March. The bank now anticipates a slower decline in inflation than initially projected, primarily attributed to significant and enduring increases in food prices.

💵 U.S. dollar rising. The U.S. dollar strengthened against major currencies on Thursday due to encouraging jobless claims data, supporting the argument for the Fed to pause interest rate hikes. (CNBC)

“For the dollar, I don’t think it meaningfully alters what’s already baked in. I think there’s a strong conviction that the Fed will pause rate hikes. But at the same time, we’re not seeing an airtight case for rate cuts to materialize by the end of the year,” said Joe Manimbo, senior market analyst, at Convera in Washington.

Gold stalls. Gold prices stalled on Thursday as a stronger dollar offset the support provided by weaker-than-anticipated U.S. economic data.

Spot gold remained stable at $2,029.46, surrendering slight gains in a volatile trading session following the release of jobs data. U.S. gold futures experienced a marginal decline of 0.1%, reaching $2,034.00.

🔔 A call to action. Treasury Secretary Janet Yellen warned on Monday that a failure to increase the U.S. debt ceiling would result in a severe "economic catastrophe." (CNBC)

“That is something that could produce financial chaos, it would drastically reduce the amount of spending and would mean that Social Security recipients and veterans and people counting on money from the government that they’re owed, contractors, we just would not have enough money to pay the bills,” Yellen said.

The European Central Bank building

🇪🇺 🏦 Don’t dream it’s over. The European Central Bank's battle against inflation is not yet over and further measures are still necessary, President Christine Lagarde warned. (Bloomberg)

“We have moved in a very deliberate and decisive way in order to fight inflation. Even so, “we still have more ground to cover,” Lagarde said.

🇩🇪 🏦 Stressful times. Germany's financial regulator issued a warning, stating that the country's banking system is facing a real-life stress test due to ongoing volatility. The regulator also anticipated notable challenges for the commercial property sector. (CNBC)

“We don’t have a global banking crisis at the moment, but we have a nervous time and a kind of real life stress test for parts of the system,” the regulator said.

😲 Panic! JPMorgan Chase CEO Jamie Dimon voiced concern over the possibility of a U.S. sovereign debt default causing market panic. (CNBC)

“The closer you get to it, you will have panic” in the form of stock market volatility and upheaval in Treasurys, Dimon said.

🐦 I quit. Elon Musk announced that Twitter will have a new CEO, and he himself will transition to a product and technical role.

Via Twitter, Musk revealed that an unnamed woman will assume the role of the new CEO and is expected to start her position in approximately six weeks.

📸 Image of the week

A meme mocking the US debt ceiling crisis


A man looking ahead for Fed’s decision on interest rates

🤔 Deciphering the Fed's Next Move. The latest inflation data indicates a stalemate in the battle against inflation, prompting speculation on whether the Federal Reserve will pause or cut rates. (Bloomberg Opinion)

While consumer prices rose modestly, core inflation showed signs of improvement. However, statistical measures and persistent housing inflation suggest caution is still necessary. Market sentiment leans toward a Fed pause, but valuations may be overly optimistic, considering both easing measures and a robust economy.

What else is happening

Flying Chinese and EU flags

💥 Don’t mess with us. Foreign Minister Qin Gang stated that China would respond firmly and forcefully to any penalties imposed by the European Union on its companies for supplying Russia with dual-use goods. Dual-use goods can be utilized for both military and civilian purposes. (Bloomberg)

Qin said China does not “deliver any weapons to crisis nations or crisis regions.” He warned against disrupting what he called the “normal exchange between Chinese and Russian companies.”

⚠️ A dire warning. An expert has raised concerns about the possibility of Russia using "horrific" chemical weapons in Ukraine, urging the international community to condemn such actions. The Kremlin said it had no intention to employ chemical weapons. (Euronews)

Russia was accused on Sunday of deploying phosphorus in the city of Bakhmut, which is under siege. Ukraine released footage claiming to show phosphorus raining down on their positions. While phosphorus is not categorized as a chemical weapon in international law, its use in civilian areas is deemed a war crime according to the Geneva Convention.

And finally…

Human genome

🧬 Human genome reboot. Scientists have revealed an updated version of the human genome that is more accurate and representative of the world's population. This new version includes a wide range of people, which will help us better understand the genetic basis of diseases, such as schizophrenia and autism, and find new treatments. (Reuters)

A group of scientists called the Human Pangenome Reference Consortium, supported by the U.S. government's National Human Genome Research Institute (NHGRI), conducted a new study to address a previous shortcoming.

The previous study did not account for the genetic differences among the world's 8 billion people. The new study aimed to fix this issue and provide a more comprehensive understanding of genetic variations.

See you next week!

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