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Mark Zandi, chief economist at Moody’s Analytics, was quoted as saying that if the bill were delayed in the Senate, “Things go from bad to worse to catastrophic in a matter of days.”
Confidence in a country’s ability to repay its debt to bondholders is nothing to worry about. The Government Accountability Office estimates that the 2011 debt ceiling debacle increased the government’s borrowing costs by $1.3 billion. Lily Adams, a Treasury Department spokeswoman, said: “As Secretary of State Yellen has warned for months, a risky breach of the debt ceiling will seriously harm businesses and American families, increase the short-term cost of borrowing for taxpayers, and threaten the creditworthiness of the United States.”
Reuters highlighted tax preparation services, US defense contractors and student loan banks as potential stocks that could benefit from the relatively small budget changes. Overall, global markets seemed to take the news calmly as it seemed as of late last week that a compromise was likely.
It’s the economy, fool!
Although two-thirds of Canadians think we’re in a recession, according to a Pollara poll, that hasn’t stopped many from picking up their wallets. Statistics Canada reports that Canadians increased their spending by 5.7% sequentially, with travel spending being particularly strong, up 6.8%.
On Wednesday, StatCan reported that Canada’s gross domestic product (GDP) grew at an annual rate of 3.1% in the first quarter of the year. That beat analyst expectations of 2.3% to 2.5% and was significantly higher than the 0.1% decline we saw in the final quarter of 2022.
Naturally, in response to this positive news, markets have begun to anticipate that the Bank of Canada (BoC) will “take the punch” by raising interest rates again. Futures markets are now pricing in a 40% chance of a rate hike at next week’s BoC meeting and a 100% chance of at least one rate hike by September.
Only time will tell if Canadian consumers (driven by a historically strong job market) can continue spending at this pace, or if our pandemic-ravaged piggy banks will soon be empty. While it will be difficult to maintain this 3.1% GDP growth going forward, we really need to be aware that we can definitely do it not in a recession. Given how strong the US jobs numbers were this week, I’d say it’s a pretty good bet that the North American economy will continue to do well for at least the next six months.
Looking at future US sales
The US earnings results are a really mixed mix again this week. Personal computing giants HP and Dell were flat after reporting mostly positive quarterly earnings numbers. The market appears to be focused on reduced future sales forecasts. (Numbers in this section refer to US currency.)
