Should Americans prepare for default? No

US equities futures rise amid debt ceiling talks update

By Ahmed Azzam | @3zzamous | 23 May 2023

  • McCarthy-Biden talk productive, no deal yet.

  • Yellen warns Treasury may run out of cash in June.

  • JPMorgan expects 15% revenue drop in investment banking and trading.

  • Dimon plans to stay, cautions investors on higher rates.

What’s happened?

US equity futures experienced a boost following the latest update on the debt ceiling negotiations. European contracts, Treasuries, and the dollar's strength remained relatively unchanged, while Brent oil prices saw a slight increase and gold declined.

During a productive conversation, Kevin McCarthy, the Speaker of the House, and President Joe Biden have not yet reached an agreement to prevent a potential debt default. Biden emphasized that both parties are committed to avoiding a default, stating, "We reiterated once again that default is off the table." McCarthy expressed his expectation of daily discussions with the President until a deal is finalized, stressing that the GOP remains opposed to tax changes. Meanwhile, Treasury Secretary Janet Yellen issued a warning, stating that it is now "highly likely" that the Treasury Department will exhaust its available funds in early June, potentially leading to a default as early as June 1.

What to watch?

JPMorgan executives predict a year-on-year decline of approximately 15% in revenue from investment banking and trading for this quarter. While the bank's markets franchise remains strong, global markets head Troy Rohrbaugh acknowledged minor areas of underperformance. Jamie Dimon, the CEO of JPMorgan, reassured investors of his steadfast commitment and dispelled rumors of any imminent resignation, advising them to prepare for the possibility of higher interest rates.

In terms of upcoming US data, the Manufacturing Purchasing Managers' Index (PMI) is expected to decline to 50 in May from April's reading of 50.2. Additionally, new home sales for April are anticipated to show a drop, while the Richmond Federal Reserve's factory index may demonstrate improvement.

Across the euro area, the manufacturing PMI is projected to show a slight increase in May, reaching 46. However, a larger decline in the services gauge is anticipated to drag down the composite index to 53.5. Forward-looking indicators suggest that the strength observed in the PMI may not be sustained, pointing to low supply and demand for credit. In the United Kingdom, despite a minor rise in the manufacturing gauge, the composite PMI is expected to slip to 54.6.