The markets have been slightly bearish today over Covid D and a rise in Jobless Claims 51K to 419k. However, the biggest immediate threat I see in the markets is a potential government shutdown over increased spending.
The current $28.5 trillion debt is the starting point as the two-year suspension of the debt ceiling occurred in 2019 but will expire at the end of July. Treasury Secretary Janet Yellen believes the federal government will hit its spending limit very quickly and said a default is “unthinkable”.
Senate Minority Leader Mitch McConnel (R-KY) said Republicans will not support an increase to the U.S. debt limit. The Senator said, “I can’t imagine a single Republican in this environment that we’re in now — this free-for-all for taxes and spending — to vote to raise the debt limit.”
This makes me think there is a 50/50 chance of shutdown because Republicans appear to be unified against raising the debt limit.
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Inflation will be the reason why Republicans won’t immediately support increasing the limit….. but will most likely increase it on their terms.
The limit could be increased through reconciliation, but the government will likely run out of money before it gets done.
Hence why I think there is a good chance of a government shutdown.
Today’s late-morning U.S. reports revealed a welcome 1.4% June existing-home sales climb to a 5.86 mln clip that broke a string of declines since February, leaving sales rates over the last 12 months that are the highest since 2006.
We also saw another blockbuster median price reading, with a 3.7% June rise to a fourth consecutive all-time high of $363,300 that left a 23.4% y/y gain and a three-month stretch with the largest y/y gains in history.
There was a solid 0.7% June rise for the leading economic index (LEI), though this, following downward revisions, modestly undershot assumptions.
These figures followed this morning’s disappointing claims figures that may reflect reduced seasonal auto retooling in this odd post-pandemic year and a fourth consecutive weekly drop in the Langer consumer comfort index to 51.5.
- Existing home sales rose 1.4% to a 5.86 mln clip, after a 5.78 (was 5.80) mln pace in May.
- Home inventories rose to 1.25 mln from 1.21 (was 1.23) mln in May, leaving a -18.8% y/y drop.
- The months’ supply of homes rose to 2.6 from 2.5 in May, versus a 1.9 all-time low in January and December.
- The median sales price rose 3.7% to a fourth consecutive new all-time high of $363,300.
- The median price posted a 23.4% y/y gain that was the second largest in history, after two record-large gains of 23.6% in May and 18.8% in April.
- Leading indicators rose 0.7%, after a 1.2% (was 1.3%) May gain.
- Eight of the ten LEI components contributed positively, led by a 0.25% boost from initial claims.
- The weekly Langer consumer comfort index fell to 51.5 from 52.2, versus a 55.7 cycle-high average in June.
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