U.S. Debt Stand-off To Add to Volatility

U.S. Debt Stand-off To Add To Volatility

  • We think the U.S. debt limit showdown will spark renewed volatility in markets. That risk reinforces why we stay invested and cautious by going up in quality.
  • Stocks were flat last week after U.S. data confirmed core inflation stayed high. We think sticky inflation makes Federal Reserve rate cuts later this year unlikely.
  • U.S. industrial production and business survey data due this week should gauge how the Fed’s rate hikes have hurt industrial and business activity.

Negotiations to lift the U.S. debt ceiling are heating up. The Treasury hit the $31.4 trillion “ceiling,” or cap on how much debt it can issue, in January. It may be unable to pay its bills in early June. Even if a deal is struck before then, we expect the debt showdown to stoke market volatility. The bigger story on a six- to 12-month horizon: We think central banks must damage growth to cool inflation in the new regime. We stay invested but cautious as a result and favor quality assets.

Volatility Brews