MyStratWeekly – May 23rd 2023

Topic of the week: Debt ceiling: the clock is ticking

• The US debt ceiling has been hit in January. The Treasury cannot borrow funds in the market so that failure to pay existing bills could occur as soon as June 1;
• House Republicans demand $5 trillion spending cuts over 10 years as Biden seeks an increase in the debt limit with no strings attached;
• Treasury bills maturing before June 1 trade at sharply negative spreads to OIS;
• In the debt ceiling crisis of 2011, the US was downgraded to AA- by S&P sending equities lower and bonds and other safe haven (gold, currencies) higher;
• Whilst unlikely, a US default would have immediate consequences for American households and global investors.

Market review: Mega caps pull markets higher

• Markets hope for a debt ceiling deal;
• Speculative positioning remains short both equities and bonds;
• US 2-year yields up to 4,20% as 10-year notes near 3.70%;
• Subordinated financials rally in the wake of stocks.

Axel Botte's podcast

• Review of the week;
• Debt ceiling: back to the 2011 crisis.

Chart of the week

Between 2009 and 2012, Greece went through an unprecedented economic depression as GDP shrank by a quarter. After a decade of painful reforms and debt restructuring, the Greek economy appears to be on a recovery path. Greece’s sovereign rating could be raised back to investment grade status in the coming weeks (Fitch on June 9th).

As the recovery gathers pace, Greek equity markets are outperforming the Stoxx Europe 600 index. The performance gap is 25% since June last year.