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Debt limit gridlock, Fed minutes, DeSantis' 2024 bid - what's moving markets

Published 24-05-2023, 02:54 pm
© Reuters

Investing.com -- The stalemate in the ongoing debt ceiling negotiations in Washington drags on, threatening to bring the U.S. to the precipice of a possibly damaging default. The Federal Reserve is due to unveil the minutes from the latest FOMC meeting, while Ron DeSantis prepares to announce his 2024 presidential bid during a conversation on Twitter with Elon Musk.

1. Debt ceiling stalemate

Fears that the federal government could soon tip into an unprecedented default are growing after yet another round of unsuccessful talks between representatives of U.S. President Joe Biden and House Speaker Kevin McCarthy over raising the $31.4 trillion debt limit on Tuesday.

McCarthy described the discussions as "very good," although a White House spokesperson later suggested that both sides will eventually need to reach an agreement that does not include "everything that they want." Democrats and Republicans reportedly remain entrenched in their divisions over spending plans.

The window appears to be closing to lift the borrowing limit before the government runs out of money to pay its bills. Treasury Secretary Janet Yellen has said this so-called "X-date" could fall as soon as June 1.

2. Gridlock in Washington hangs over stocks

U.S. stock futures pointed lower on Wednesday as investors nervously watched the unfolding drama in Washington over the debt ceiling.

At 04:24 ET (08:24 GMT), the Dow futures contract was down by 83 points or 0.25%, S&P 500 futures lost 10 points or 0.25%, and Nasdaq 100 futures shed 26 points or 0.19%.

A U.S. default could potentially greatly damage the world's largest economy and roil already anxious global financial markets.

These concerns were highlighted on Wall Street yesterday, where all three of the major indices closed in the red. The blue-chip S&P 500 slumped 1.12%, the tech-heavy Nasdaq Composite fell 1.26%, and the broad-based Dow Jones Industrial Average dipped by 0.69%.

3. FOMC meeting minutes due

Markets will be hunting for clues about the Federal Reserve's future interest rate path when the U.S. central bank releases the minutes from its May meeting at 14:00 ET (18:00 GMT).

At the meeting, policymakers voted for the tenth consecutive rate hike in the Fed's long-standing tightening campaign aimed at cooling red-hot inflation.

The debate now swirls around whether the Fed will choose to push pause on its rate-rising cycle at its meeting next month.

Fed chair Jerome Powell suggested last week that a halt could be in order following a string of recent bank failures. But, on Monday, St. Louis Fed President James Bullard said two more rate hikes this year may still be needed, while his Minneapolis colleague Neel Kashkari said the central bank should signal in June that tightening is not over even if it elects to pause.

4. DeSantis to unveil 2024 presidential bid on Twitter

Ron DeSantis is reportedly gearing up to announce that he will run for U.S. president in 2024 during a conversation with Elon Musk on Twitter on Wednesday.

Speaking at a Wall Street Journal event yesterday, Musk said that he would speak with DeSantis on Twitter Spaces, teasing that there will be "quite an announcement" from the Florida governor.

Several news outlets later reported that DeSantis will use the opportunity to launch his presidential campaign. The WSJ noted that he will also likely file the paperwork with the Federal Election Commission needed to make his bid official today.

For his part, Musk said that he was not trying to endorse any particular candidate, adding that he planned to interview people of all political stripes. However, the billionaire has previously said that he was leaning towards voting for DeSantis.

5. Supply worries boost crude prices

Oil prices rose on Wednesday, but pared back some earlier gains after industry data showed a steep drop in U.S. inventories that hinted at tightening supply conditions ahead of the all-important summer driving season.

Data from the American Petroleum Institute showed that crude stocks fell by about 6.8 million barrels in the week ended May 19, while gasoline inventories dropped by about 6.4 million. If confirmed by official data later in the session, gasoline stocks would have declined for the third consecutive week to their lowest pre-Memorial Day levels since 2014.

The Saudi energy minister added to these supply worries on Tuesday when he warned investors betting that the price of oil will go down to "watch out." This in turn fuelled speculation that the Organization of Petroleum Exporting Countries and its allies may potentially slash production at its next meeting in early June.

At 04:27 ET, U.S. crude futures traded 1.23% higher at $73.81 a barrel, while the Brent contract climbed 1.04% to $77.64.

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