President Joe Biden and top Republican Kevin McCarthy are set to restart discussions on the debt ceiling deal as the likelihoodย of a United States default becomes increasingly imminent. This alarming situation poses a wholeย lotย of threat to worldwide financial markets, but so far, the Unitedย States stock market and the broader cryptocurrency sector have remained relatively unaffected. Nonetheless, a new analysis from JPMorgan isย 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, JPMorganโs equity macro strategy team expressed concerns that equities couldย be slow to factor in theย dangers of a contested debt-ceiling boost and the growing probabilities of a technical default. As the Unitedย 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 Unitedย States is expected to default on its obligations, is within two weeks. Furthermore, Goldmanย Sachsย Group projects that the Treasuryโs cash balance can fall below $30 Billion by June 8-9, a threshold historically used to project the deadline. Althoughย while speaking about the development, Goldman Sachsโ economic research team was quoted as saying:
We likewise expect severalย more twists along the way, and suspect that markets are likely to price in additional danger before the debt limit is eventuallyย raised.
Growing Concerns Over Unitedย States Debt
The Unitedย States stock market did fall when preliminary talks betwixt the two parties โ President Biden and Speaker of the House Kevin McCarthy โ broke off on Friday in Bidenโs absence. Nonetheless, overall the declines have been contained as the S&P persistsย to trade within the range it has been in duringย theย previous 6 months, which is approximately around 3,800-4,200.
The cryptocurrencyย market has likewise remained resilient with BTCโs price flirting around the $26-27k range and Ethereumย (ETH) mostly trading nextย to the $1800 price mark. Onย theย otherย hand, as highlighted by JP Morganโs latest analysis, a major collapse in the Unitedย States stock market canย potentially have a large ripple effect on the digitalย currency market likewise, which could result in Bitcoinย (BTC) breaking past its levelย ofย support of $25,000 and hitting a new monthly low.
Asย aย 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 comesย 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.
