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Fed Likely to Pause (for now)
With the debt ceiling deal behind us – markets will now focus on the next FOMC meeting. It’s widely expected the Fed will pause on any rate hikes in June – especially given some of the underlying weakness in the jobs data. However, the market is not ruling out further increases later this year. I also take a look at AI boom in the market… call it “BoomGPT”. Invest with optimism but do it with your eyes open.
Could $1.1 Trillion in ‘T-Bills’ Suck Out Liquidity?
Over the weekend, financial media reported a deal in principle to raise the debt ceiling. Based on all reports, the deal sets a two-year spending cap, kicking in October 1. Now if Washington DC agrees to at least slow its spending – they’re likely to be doing it during an economic slowdown. And this could have a near-term impact on economic growth and the valuations of risk assets. What’s more, if Treasury are permitted to issue $1.1 Trillion in fresh T-bills – what will that do to liquidity? Will banks deposits start looking for a (higher return) home?
Ignore the Debt Ceiling Noise
Mainstream media remain fixated on ‘debt ceiling’ negotiations – warning of a “financial catastrophe” if this doesn’t get done. This is the 78th time we have hit the so-called debt ceiling. And how many defaults has there been? Zero. A deal will get done. And if we are presented with a sell-off in markets – then it represents an opportunity.
Excess Liquidity Still Present
Many people seem puzzled as to why the market continues to trade higher. For example, some readers have told me they missed the rally – wondering why things have not completely unravelled sooner. They’ve chosen to sit things out for one reason or another. And that makes sense… I’m sure they are not alone. Why are markets defying gravity? And how long could it continue? The short answer for a while yet. And the driver is liquidity.