Stocks Rocked on Debt Impasse
US stock markets have reacted to a lack of progress on the debt issue with some sharp moves down in the trading session today. Kevin McCarthy left the White House on Tuesday afternoon advising that the two sides had not come to an agreement and no further talks were planned. The Dow closed down 0.69%, the S&P 1.12% and the Nasdaq led the way lower, finishing 1.26% in the red. Short-end US treasury yields once again pushed higher – the 1-month trading at record highs – and the dollar appreciated against most of the major pairs.
US Debt Issue Could be the Catalyst for Some Big Moves Ahead
Financial markets news has been dominated by updates on the US debt situation for the last few days, but it has been a slow-burning fuse for months and markets do not seem prepared for a default to occur. The VIX – well known as Wall St’s fear factor – is still trading at relatively low levels but traders with long memories will look back on 2011 when the US government narrowly made a deadline for raising the ceiling and S&P stripped the US of its AAA rating. On that occasion, markets were routed and the VIX hit highs at 48. Stock markets are trading at relatively high levels given the potential risks from this and other issues including still simmering concern for the US banking system and a rush for the door could see some significant downside corrections across financial markets.
Central Bank Focus for Traders Today
Investors will be looking to central banks for fresh direction today with some additional tier 1 data thrown in for good measure. First up in the Asian session, we have the latest rate announcement from New Zealand with the RBNZ firmly expected to raise rates to 5.50%. Into the European session, we have the UK CPI data due which is expected to come in at 8.2% for the year-on-year number, before later hearing from BOE Governor Andrew Bailey. Into the US Day and expect volatility to pick up once again as Treasury Secretary Janet Yellen is due to speak before the market focuses on the FOMC Meeting Minutes.
