Debt Ceiling
In the least surprising event, this weekend an “agreement in principle” between President Joe Biden and House Speaker Kevin McCarthy would raise the nation’s legal debt ceiling.
Per CNN:
The drama is by no means over. Congressional leaders in both parties have to convince enough of their members to vote for the agreement, which contains provisions that lawmakers on each side of the aisle don’t support.
Not all the details of the agreement are available yet. And the information made public Saturday evening shows some discrepancies. The bill text is scheduled to be released Sunday.
Here’s what we know about the deal, based on a fact sheet circulated by House Republicans and a source familiar with the negotiations.
Raises the debt ceiling: The agreement would increase the debt limit for two years.
Caps non-defense spending: Under the deal, non-defense spending would remain relatively flat in fiscal 2024 and increase by 1% in fiscal 2025, after certain unspecified adjustments to appropriations were made, according to the source.
After fiscal 2025, there would be appropriations targets, but they would not be enforceable, according to the source.
The House GOP fact sheet says that non-defense discretionary spending would be rolled back to fiscal 2022 levels and topline federal spending would be limited to 1% annual growth for the next six years.
The debt ceiling bill that House Republicans passed last month would return discretionary spending to fiscal 2022 levels and then limit the growth in spending to 1% for a decade. Defense spending would be protected.
Protects veterans’ medical care: The deal would maintain full funding for veterans’ health care and would increase support for the PACT Act’s toxic exposure fund by nearly $15 billion for fiscal year 2024, according to the source.
The House GOP fact sheet says veterans’ medical care would be fully funded.
Expands work requirements: The agreement calls for temporarily broadening of work requirements for certain adults receiving food stamps.
Currently, childless, able-bodied adults ages 18 to 49 are only able to get food stamps for three months out of every three years unless they are employed at least 20 hours a week or meet other criteria. The deal would raise the age to 54, according to the source. The GOP fact sheet says it would apply to those up to age 55.
However, the deal would also expand exemptions for veterans, people who are homeless and others in the Supplemental Nutrition Assistance Program, or SNAP, as food stamps are formally known.
And all the changes would end in 2030.
The agreement would also make changes to the current work requirements in the Temporary Assistance for Needy Families program.
Work requirements would not be introduced in Medicaid, which House Republicans had called for in their debt ceiling bill.
Claw back unspent Covid-19 relief funds: The deal would rescind unobligated funds from the Covid-19 relief packages that Congress passed to respond to the pandemic, according to the House GOP fact sheet.
Estimates on how much of the roughly $4.5 trillion in relief remains vary.
Cut Internal Revenue Service funding: The agreement would cancel the total fiscal year 2023 staffing funding request that the House GOP says would go for new IRS agents, according to the fact sheet.
House Republicans have been determined to cancel the roughly $80 billion in IRS funding contained in the Inflation Reduction Act that Democrats passed last year. The GOP lawmakers argue that the money will be used to hire an army of new agents to audit Americans, but the agency says it will also be used to support operations, modernize customer service technology and assist taxpayers.
Restart student loan repayments: The deal would require borrowers to pay back their student loans again, according to the House GOP fact sheet, although when repayments would start is not specified. They have been paused since the Covid-19 pandemic began.
However, the agreement would maintain Biden’s plan to provide up to $20,000 in debt relief for qualifying borrowers, the source said. The measure is currently before the Supreme Court, which is expected to rule on it in coming weeks.
Big story last week was all about tech out-performance
What is driving the outperformance in the technology sector?
Per Edward Jones:
There may be a few reasons behind the recent technology outperformance. First, growth sectors were the biggest laggards last year, and they experienced the sharpest declines in valuations, perhaps making the technology and growth areas more appealing to investors looking for bargains. Secondly, many large-cap technology stocks have become part of a defensive strategy more recently. These companies have certainly shown resilience through this past earnings season, highlighting their defensible business models and strong financial positions, and returning value to shareholders through share-repurchase programs.
Finally, in our view, many investors see the attractive growth potential of the emerging artificial intelligence (AI) space – sparked by ChatGPT / Google Bard, etc. – which could be in the early innings of a multiyear growth cycle. In fact, last week semiconductor company NVIDIA, whose stock soared after it raised its revenue guidance well above analyst expectations, pointed to generative AI as a critical growth driver. Many investors who are sitting on the sidelines, given the better yields from cash-like instruments, need a compelling reason to enter the markets, and the growth potential of AI technologies may be where some of this cash is now flowing.
Fed Minutes came out on Wednesday
Here is the link if you would like to read them
But Joe Weisenthal caught the best nugget: Tighter credit conditions could be putting upward pressure on inflation, by constraining supply.
Post of the week on twitter comes from Michael Green (@profplumb99)
Everyone enjoying the increase in “Core Services ex-Housing”? Know what’s driving it? Imputed costs of financial services and motor vehicle leasing… which is 90% tied to interest rates. Like Volcker, Powell is creating his own inflation.
TECHNICALS
Crude oil
Crude oil is till in no mans land. This could be a 3 wave drive (sending it back down) or a 5 wave drive, meaning two more waves higher.
June 4 OPEC meeting is coming up and Saudi Oil minister warned short sellers last week again that they would be “ouching.” This is the third time he has sent this warning. The First time was in September of 2020 (we all know what oil did after that) and then again in April just before OPEC announced 1.6M in voluntary cuts.
Will there be another surprise at the June 4th OPEC+ meeting? We shall soon find out!
Nat gas
Still no change to my view.
Nat gas is still waffling in a supply zone, again, really hard for me to get excited about this market.
I want to see a clear break over $3.40/75 for the futures or over $11.70 in UNG to get bullish this market over the longer term, we just are not even close yet.
Gold
Gold hit ted 20 week and bounced a bit, but with a debt ceiling resolution, likely we see further downside. (targets on chart)
Silver
Silver hit the 100 day and also bounced a bit, but like gold possible we see some more downside with a debt ceiling resolution. Weekly support comes in at 21.19, but there are several downside targets before then that could offer support.
Copper
Copper broke down last week, on terrible data from China. It bounced off the 200 day, and weekly support is just below at 3.50. Watch these areas as we are getting oversold.
$DXY USD
I am still watching that 105/106 area, as obviously this USD bounce is putting downward pressure on commodities.
Financial Disclaimer: This material has no regard for specific investment objectives, financial situations, or particular needs of any user. This material is presented solely for informational and entertainment purposes and is not to be construed as a recommendation, solicitation, or an offer to buy or sell / long or short any securities, commodities, or any related financial instruments. Nor should any of its content be taken as investment advice. The views expressed here are completely speculative opinions and do not guarantee any specific result or profit. Trading and investing are extremely high risk and can result in the loss of all of your capital. Any opinions expressed here are subject to change without notice. We may have an interest in the securities, commodities, and/or derivatives of any entities referred to in this material. We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. We recommend that you consult with a licensed and qualified professional before making any investment or trading decisions.
