The U.S. Debt Ceiling & USDJPY opportunity

This time we are left to focus on 1Q2023 US GDP & core PCE inflation figures and the debt ceiling debates (again). Also, the Federal Reserve is entering a blackout period ahead of the anticipated rate meeting on May 3rd, 2023.

A blackout period for the Federal Reserve is a time period ahead of an important monetary policy decision (such as the upcoming rate meeting on May 3rd). During that time, all communications from the Federal Reserve are restricted, including speeches & press conferences.

This is because policy markets can have a period of focused discussion without possible interference and disruptions. After the blackout period ends, the Federal Reserve will release decisions or statements resulting from their meetings.

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US debt ceiling

The US debt ceiling is the legal limit on how much the US government can borrow to pay its bills, which is called the debt ceiling.

Well, a video might be more useful, right?

Congress sets the debt ceiling, and the debt ceiling debate has been raised many times. If the debt ceiling isn't raised, the Treasury Department will run out of money and have to stop paying some of its bills like interest on the debt, social security payments, medicare, and tax returns. That would be the spark of a financial disaster that would hurt the US and its image around the world. In 2020, the debt ceiling was put on hold until July 31, 2021.

Over the years, the debt ceiling has been used for political debates. Let's go over the split in opinion between Democrats and Republicans.  

Republicans: Raising the debt ceiling should come with cuts on spending and policy changes.

Democrats: The debt ceiling has to be raised without any conditions.

Now, even if you're pro-democrat due to a different stand about Ukraine, Russia, wars, ESG, and the unending debate about how the right wing is for "edgy kids" or "racists," what do you think? Should the debt ceiling be raised without any conditions?

In 2011, Obama and House Speaker John Boehner made a budget deal that included spending limits and a special committee to find ways to save money.  The deal also raised the debt ceiling until 2013. However, Standard & Poor's still downgraded the U.S. credit rating, stating that politicians were playing too close to the edge and lack of fiscal credibility.

Since then, Obama refused to talk with Republicans about raising the debt ceiling in 2013 and 2015. In the end, Congress passed clean raises with backing from both parties. During his time in office, President Trump also signed a few changes to the debt ceiling that didn't cause much trouble.

However, the current situation is different, as Republicans have regained control of the House.

Kevin McCarthy, the speaker of the House, suggested a bill that would raise the debt ceiling until 2024, but it would also reduce spending and eliminate parts of the "Inflation Reduction Act" that Biden signed.

Biden and Senate Majority Leader Chuck Schumer both said that the bill wasn't good enough and called for everyone to work together to raise the debt ceiling without any conditions.

As of now, there's no clear resolution. Congress is running out of time to move before the US could default on its debt. There's a lot at stake for both the Democrats and Republicans and, of course, the rest of the world.

This week, House Republicans may decide to raise the debt ceiling until next year.

However, the Senate, which Democrats control, has vowed to reject this plan because it includes spending cuts.

So, we might see little to no progress unless the PCE inflation number on Friday surprises us above the expectations of 0.3% month on month.

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BoJ Meeting Presents Opportunities Despite US Banking Crisis

The newly appointed Bank of Japan Governor Kuzeo Ueda takes on his first policy meeting this Friday, April 28, 2023.

Despite the lack of expectations in changes to the BoJ's Yield Curve Control policy this month, the meeting may provide insights into the chance of potential adjustments by June.

With the ongoing US banking crises, expect USD/JPY to stall at 135 with a final target down to ~125

A good risk/reward trade

Week ahead

42% of the SPX will report earnings this week

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