JP Morgans Dire Warning: Debt Talks Could Trigger Market Crash

JP Morgans Dire Warning: Debt Talks Could Trigger Market Crash


JPMorgan warns of potential market volatility as debt ceiling discussions between President Biden and top Republican Kevin McCarthy resume amidst growing concerns over the US debt and the possibility of default.

President Joe Biden and top Republican Kevin McCarthy are set to restart discussions on the debt ceiling deal as the likelihood of a United States default becomes increasingly imminent. This alarming situation poses a whole lot of threat to worldwide financial markets, but so far, the United States stock market and the broader cryptocurrency sector have remained relatively unaffected. Nonetheless, a new analysis from JPMorgan is warning that the lack of market movement could indicate a potential surge in volatility as the default deadline approaches.

Financial Markets Remain Volatile

In a note to clients on Monday, JPMorgan’s equity macro strategy team expressed concerns that equities could be slow to factor in the  dangers of a contested debt-ceiling boost and the growing probabilities of a technical default. As the United States gets closer to the deadline, these dangers could sharply re- price, leading to broader market turbulence.

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Bank of America Research, on the other hand, outlines that debt ceiling concerns typically impact stocks when the X-date, the day the United States is expected to default on its obligations, is within two weeks. Furthermore, Goldman Sachs Group projects that the Treasury’s cash balance can fall below $30 Billion by June 8-9, a threshold historically used to project the deadline. Although while speaking about the development, Goldman Sachs’ economic research team was quoted as saying:

We likewise expect several  more twists along the way, and suspect that markets are likely to price in additional danger before the debt limit is eventually  raised.

Growing Concerns Over United States Debt

The United States stock market did fall when preliminary talks betwixt the two parties — President Biden and Speaker of the House Kevin McCarthy — broke off on Friday in Biden’s absence. Nonetheless, overall the declines have been contained as the S&P persists to trade within the range it has been in during the previous 6 months, which is approximately around 3,800-4,200.

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The cryptocurrency market has likewise remained resilient with BTC’s price flirting around the $26-27k range and Ethereum (ETH) mostly trading next to the $1800 price mark. On the other hand, as highlighted by JP Morgan’s latest analysis, a major collapse in the United States stock market can potentially have a large ripple effect on the digital currency market likewise, which could result in Bitcoin (BTC) breaking past its level of support of $25,000 and hitting a new monthly low.

As a result to the urgency of the situation, President Biden and McCarthy are scheduled to meet at 5:30 P.M. EST (21:30 GMT) on Monday, May 22. This meeting comes after a phone call betwixt the two leaders on Sunday, emphasizing the need for prompt decision-making regarding the debt ceiling issue. The outcome of these negotiations will determine the course of action to avert a potential default and the subsequent effect on the worldwide financial landscape.

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