Debt limit: The political monster
|US stocks are trading lower Wednesday amidst a shortage of new information on the debt limit negotiations. And with not-so-great data points out of Europe., China is still in the dumps, and the US is stuck in a political quagmire; there is a notable sullied shift in global market sentiment
Indeed, US stocks slid as markets fretted over the looming debt-ceiling deadline as investors are fed up with Washington's bipartisan politics.
The ceiling has become a political monster and is being used, not as intended, but as a hazardous bargaining chip that holds global markets hostage to extract political demands.
The US enacted a debt limit so the Treasury Department could borrow when needed, just underneath the limit. And when that limit needed to be raised, the department could consult with Congress.
Ironically, it was meant to make life efficient for the Treasury, and now it does precisely the opposite.
The situation is precarious, not just for the U.S. economy but for both political parties. It’s not a great look to be seen as playing a game of chicken with the national economy ahead of an election year.
With the 'early June' deadline that Treasury Secretary Yellen reiterated this week fast approaching, traders have little option but to hedge risk beyond the x date; hence, market insurance premiums march higher, which must be reflected through other risk markets, like stocks.
Memorial Day weekend holiday gives lawmakers an added incentive to resolve things; negotiation strategy and political incentives still imply a last-minute deal is possible, if not most likely. Hence there is still some optimism that corks will be popped this holiday weekend.
Energy remains the only major sector in the S&P 500 that is gaining ground today -- front-month oil is up almost 2% on the back of the OPEC backstop and a weekly EIA storage report.
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