US US markets erased early losses this week after House of Representatives Speaker, Kevin McCarthy suggested that a debt ceiling deal could be struck as early as next week. Since 1917 the US has set a legal limit to the amount of debt it can hold, this is current at $31.4 trillion and was hit in January. Since then the US government has been unable to borrow money legally.
Raising the debt ceiling requires a vote through the house of representatives which has a Republican majority and is using this as political capital to pressure Democratic President Joe Biden to agree to spending cuts. Any such agreements which would then need to pass through the Senate, which has a Democratic majority so moving past negotiations and onto decisions that appease all parties will be a difficult task..
Focus on inflation for corporate America seems to be at last fading; of all the S&P500 companies to have reported earnings for quarter 1 only 278 reports cited “inflation” among their concerns, the lowest figure since quarter 2 2021.
Technology stocks were among the week’s biggest winners with the tech-heavy Nasdaq composite close the week up over 3%.
Mexico The pesos recent charge against USD reversed this week as it lost over 1% across the week. While still at a historic high against the greenback the peso lost value as Mexico´s central bank decided to pause interest rate hikes after almost two years of tightening, interest rates were held at 11.25%. "With this decision, the monetary policy stance remains on the path required to achieve the convergence of inflation to its target of 3% within the forecast horizon” Banxico reported in a statement.
The peso has been the best performing among major Latam currencies in 2023, rising 10.3% against the greenback, followed by the Colombian peso, which was down 0.7%. Currencies of both leading oil exporting nations have also been affected by falling crude oil prices. Preliminary estimates from the national statistics agency, INEGI, showed that Mexico's economy likely grew 2.6% in April compared with the same month in 2022.
Europe European markets began the week on a positive note as the European Commission reported that the European economy was in much better share than previously predicted, revising upwards growth forecasts in their Spring 2023 economic forecast. Forecasters are also predicting growth in the UK and it is now widely expected that the UK will avoid recession this year.
UK telecoms giant, BT, said that over the next decade it would cut 55,000 jobs, up to 40% of its workforce, as it cuts costs with technology and more specifically AI taking up the slack.
Most European markets held onto their gains this week despite seesawing sentiment over the US government’s ability to secure a debt ceiling rise in the coming weeks. European market sentiment at least points towards an optimistic view that there headway may be made next week.
Asia
Asian stocks followed western markets towards the end of last week and rallied after fears of disruption to the global financial system should the US fail to reach agreements over its debt ceiling abated. The Shanghai Composite Index gained 0.34% and the Nikkei 225 in Tokyo, surging to a 33 year high, advanced 4.83%. The Hang Seng in Hong Kong fell almost 1%.
Earlier in the week Asian stocks, particularly in China, suffered after economists downgraded the country’s growth forecast for 2023. China’s April industrial output and retail sales growth undershot forecasts, suggesting the economy lost momentum at the beginning of the second quarter and intensifying pressure on policymakers to shore up a wobbly post-Covid recovery.
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