Morning Brief – US Government Default on June 1 without a hike in the Debt Ceiling 

US Government Default on June 1 without a hike in the Debt Ceiling 

Markets (so far) are remarkably sanguine about this appalling scenario for the US and therefore the global economy. President Biden and the Republican House Speaker have not discussed this issue since February-and the Speaker is currently in Jerusalem so unable to meet until May 9. While this brinkmanship is part and parcel of Washington politics, this is the worst instance of a debt ceiling fight since 2011 which took the USA to the very edge of the default cliff. The President apparently unconcerned about the implications for the US, has said that he will not approve the rise in the debt ceiling without cuts to spending and the expectation is that despite the lack of time between now and the likely date that the US Government will run out of money and be unable to pay its bills, that sense will prevail and agreement will be reached. Those who fear the intransigence of the various parties and the ability to resolve this impasse competently should consider buying gold as a hedge.

USD 2,025 or Swiss Francs USD/CHF 0.8900.

Eurozone Inflation

With yesterday’s headline inflation rate coming in at 7% while core inflation stood at 5.6% in April, despite the target rate being 2% and interest rates still low at 3%, the thinking has switched from expecting a hike of 50bps on Thursday to now a rise of 25bps. While a reasonable argument can be made for a smaller rise, markets would do well to heed the last pronouncement from Mme Lagarde when she made it clear that inflation was too high and had to be tackled-firmly.

EUR/USD 1.1040.

US Federal Reserve decision

Tonight’s Fed decision on interest rates is expected to be a further rise of 25bps followed by a pause for a few months and then a gentle decline. The problem with such expectations is that often things do not pan out as expected when it comes to the US economy. The important part of tonight’s announcement will be contained in the press conference when Chair Powell will give some colour to his thinking on the Fed being able to achieve a soft landing for the US economy.

GBP/USD 1.2520.

Australian Wine 

Climate change is now the biggest threat to the health of the wine industry in the southern hemisphere. Particularly in Southern Australia, the effect of a 1.3 degree increase in the average temperatures is the difference between being able or unable to grow cooler climate grapes such as Sauvignon Blanc, Chardonnay and Pinot Noir in some areas. The so far fortunate aspect to this is that temperatures can vary quite markedly within short distances, so there are still plenty of wineries in Victoria, South Australia that are so far unaffected.

USD/AUD 1.5005.

Carrie Anne

Just as good today as it was when this song was recorded by Manchester UK rock band the Hollies this day in 1967. Formed in 1962 and still going if not strong, definitely going, the Hollies are as near to rock royalty as you can get.

Hey, Carrie Anne
Hey, Carrie Anne
When we were at school, our games were simple
I played a janitor, you played a monitor
Then you played with older boys and prefects
What’s the attraction in what they’re doing?

Hey, Carrie Anne, what’s your game now?
Can anybody play?
Hey, Carrie Anne, what’s your game now?
Can anybody play?

You were always something special to me
Quite independent, never caring
You lost your charm as you were aging
Where is your magic disappearing?

Hey, Carrie Anne, what’s your game now?
Can anybody play?
Hey, Carrie Anne, what’s your game now?
Can anybody play?

You’re so, so like a woman to me
(So like a woman to me)
So, so like a woman to me
(Like a woman to me)

Hey, Carrie Anne, what’s your game now?
Can anybody play?
Hey, Carrie Anne, what’s your game now?
Can anybody play?

People live and learn but you’re still learning
You use my mind and I’ll be your teacher
When the lesson’s over, you’ll be with me
Then I’ll hear the other people saying

Hey, Carrie Anne, what’s your game now?
Can anybody play?

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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