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Diary: Take it to the Limit, One More Time

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2023-05-21

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It might look a quiet week ahead on paper, but the big issue will be the US debt ceiling negotiations and possible vote sometime in the next few days.

The talks were off, then back on Friday night and then off again and no one knows what will happen. The Republicans see this as their best chance to embarrass the Democrats and the Biden Administration but their past attempts to do this have ended in ignominy and blame.

It’s a needless, stupid situation that both sides of US politics have gotten the country into and they refuse to try and find a way to get rid of the returning confusion.

We are still a way to go to the next Fed meeting on June 12 and 13, so if a deal happened this week or next (a deal on May 31, on the eve of the June 1 deadline for the US government to run out of cash can’t be discounted - what are politicians here for but to draw attention to themselves?), the Fed would not have to worry about dealing with America becoming insolvent.

Instead it would be back to monetary policy, financial stability and of course the next US jobs report and the May inflation reading on the same days.

Oil and gold prices will be volatile this week as will the US dollar and treasury yields - all meaningless given that once a debt deal is done, the volatility will ease.

Apart from the debt ceiling soap opera, there’s the mid-month business conditions surveys for the US, Europe, Japan and Australia to be released tomorrow.

Analysts and economists will be watching and for a slowing in growth after strength in the last few months and further signs of easing inflation pressures.

In the US, the Fed will release the minutes from its last meeting on Wednesday and will be read for further signs the central bank is thinking of an easing in its tightening bias with a greater dependency on incoming data (like jobs and inflation).

There’s also the second estimate of US first quarter economic growth - currently 1.1%. And there’s also an update in the US trade data for April.

And there’s the latest weekly data on US jobless claims on Thursday after the recent surge was found to have resulted from a spate of fraudulent claims, especially in the state of Massachusetts

The number of first-time claims for weekly jobless benefits fell last week to 242,000, down 22,000 from 264,000 the week before.

But reports of fraud in have confused the accuracy of the data in recent weeks.

A week ago, the Department of Labor’s report on unemployment insurance filings showed that the number of weekly initial claims jumped by 22,000 to land at their highest level since October 2021.

However, a large share of those new claims came from Massachusetts, where the state labour department said the reported gain was a reflection of an increase in fraudulent activity and not necessarily a spike in people filing for unemployment benefits.

Thursday’s report appears to offset that and recent increases in Massachusetts. The weekly claims attributed to Massachusetts fell by 14,042 on a non-seasonally adjusted basis, representing three-quarters of the decline of 18,605 claims.

The US sees new home sales data tomorrow (Tuesday), and the usual end of month release of personal consumption, expenditure, savings and inflation data (called PCE inflation).

The AMP’s chief economist, Shane Oliver expects a further slight fall in core private financial consumption deflator inflation for April to an annual rate of 4.5% from 4.6% in March and soft durable goods orders (both due Friday).

It’s quiet here in Australia except for the preliminary retail sales data on Friday with a small fall of 0.1% expected, according to Dr Oliver.

Across the Tasman and the Reserve Bank of NZ is forecast to again raise its cash rate by 0.25% to 5.5%.

Central banks in Indonesia and South Korea meet and are expected to leave their cash rates unchanged.

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