Overview

A deal for increasing the US debt ceiling looks to be in sight, sending markets broadly upwards. Meanwhile, stronger than expected PCE data has sent US bond rates up once again. Tech giant Nvidia announced impressive earnings off the back of AI earnings. Overall, it has been a strong week for equity markets who have been taking the news well, for both USD and crypto. Watch for the next big narrative to dominate the markets in the coming weeks.

US Debt Ceiling

With McCarthy, the Republican house leader, and President Biden having come to an agreement, the debt ceiling bill will pass in some way, shape or form. There might be some last minute wrangling over the minutiae, but a few spoilers will not be able to stop a majority vote from clearing it. Concurrently, the US Treasury has managed to wrangle a few extra billions to push back the default date to June 5. The current market rallies imply an expectation of no more surprises.

Expect this to be the last act of this saga for now. In the longer term, expect the credit worthiness of the US to be more open to doubt. We may see another rating cut from a major agency coming. It is also quite likely we see repeats into the future wherever there is a Democrat in the White House and a Republican majority in the House.

Equity

Tech giants continue to buoy the current equity market, and the difference between megacap top performers and the rest of the market grows increasingly apparent. NASDAQ is up 25% YTD, while the S&P 500 sits at 10%. Meanwhile the S&P 500 equal weight index is flat for the same period. Not all is rosy.

AI continues to be one of the main drivers for the current explosion in tech valuations. In contrast to software giants like Google and Microsoft however, Nvidia is seeing revenue upfront and is likely to continue to enjoy windfalls from any further positive developments in the field. Its most recent earnings sent it more than 25% overnight. The same can be said, though to a lesser degree, for AMD, the 2nd biggest supplier for AI hardware. Now that the news is absorbed however, future direction is more uncertain.

Upcoming Calendar Events

• US consumer confidence (30 May)
• EU inflation data (1 Jun)
• US labour data (2 Jun)
• US Treasury X-date (5 Jun)

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