Markets This Week: Debt Ceiling Talks, Canada GDP, US Nonfarm

The US debt ceiling agreement between President Joe Biden and House Speaker Kevin McCarthy was met with cautious optimism by international markets. President Joe Biden and House Speaker Kevin McCarthy voiced confidence that their deal will pass Congress and reach the president’s desk for signature, averting a historic US default.

 

Investors had already grown more certain on Friday that a deal would be reached in Washington, which weakened Monday's advances. Traders still have a lot to worry about, from the possibility of another interest-rate hike from the Federal Reserve to a potential flood of bond issuance from the US Treasury Department, assuming the deal passes Congress, which cannot be taken for granted.

 

Given that Treasury Secretary Janet Yellen has predicted that funds will run out on June 5th, the agreement reached by Biden and McCarthy is a race against time. Democrats and Republicans will both find a lot in the agreement to dislike.

 

Treasury market investors have remained optimistic about the prospects for a debt deal, with swap traders now pricing in about a quarter-point rate hike over the next two Federal Reserve policy meetings, implying the central bank will be able to retain its focus on fighting inflation.

The Personal Consumption Expenditures price index, one of the Fed’s preferred inflation gauges, rose faster-than-expected by 0.4% in April. 

 

Wednesday will hold Canada’s latest economic growth data. GDP Growth Annualized in Canada is expected to be 0.3% by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. In the long term, Canada’s GDP Growth Annualized is projected to trend around 1% in 2024 and 2% in 2025, according to our econometric models.

 

JOLTs data is also expected on Wednesday, announcing the number of job openings in the United States. Expectations currently sit at 9.375M, indicating that the labor market may be cooling off.

 

On Thursday, the ISM Manufacturing PMI in the United States will be announced, expected to reach a reading of 47. PMI rose to 47.1 in April 2023, up from a three-year low of 46.3 in the previous month and slightly above market consensus of 46.8.

 

This week’s highlight comes with Friday’s Nonfarm payroll and unemployment data for May. The US economy is expected to add 195K jobs in May 2023, after unexpectedly adding 253K jobs in April 2023. The unemployment rate in the United States is expected to rise to 3.5% in May 2023 after edging down to 3.4% in April 2023.

 

 

 

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