Traders hesitant as debt ceiling talks continue, IMF cautiously optimistic, more Saudi warnings

Equity markets are broadly lower on Tuesday as traders monitor debt ceiling talks in Washington, take note of new IMF forecasts, and hear fresh warnings from the Saudi Energy Minister.

Once again, it’s been a relatively lively day as far as headlines are concerned and yet there’s still a feeling of hesitance in the markets. We’re still waiting to see a resolution on the debt ceiling, which will undoubtedly come, after more promising talks between President Biden and House Speaker McCarthy.

At the same time, we may be at a turning point on inflation and interest rates around the world but we’re still waiting for data that could confirm that or at least put us on a more promising path. The next couple of months will be crucial for that.

IMF more optimistic on UK economy but warns of downside risks

The UK will now avoid a recession this year according to the IMF which revised its growth forecast from -0.3% to +0.4% on the basis of stronger household spending, higher wages and reduced post-Brexit uncertainty. The first two will also likely force the Bank of England to keep rates higher for longer, as the IMF warned, so the challenges aren’t going away any time soon. But this is a welcome start given the far more pessimistic forecasts following the drama of last year.

Bailey forced to defend policy response again but comments tomorrow more important

BoE Governor Andrew Bailey was joined by colleagues to testify in front of the Treasury Select Committee once more this morning, this time on the monetary policy report. Coming so soon after the grilling on quantitative tightening, you’d be forgiven for confusing the two as the topics of debate were largely the same, with the MPC forced to defend its decision-making over the last couple of years and its credibility, by extension, now.

Ultimately, it’s not what Governor Bailey or his colleagues said today that will be the key takeaway this week, but rather what he says tomorrow in his two appearances following the release of the April CPI report. This is expected to be the first sharp fall coming a year after the surge in energy prices meaning the data going forward will have favourable base effects, albeit not at the core level which will fall at a much slower pace.

Bitcoin not seeing momentum in either direction

Bitcoin remains in consolidation, pushing a little higher on the day but not really making any progress in either direction. The recent trend is very much against it and the break of $27,000 a couple of weeks ago certainly suggests it may have entered into corrective territory but as yet, it’s been very resilient. If we do see a move lower, the 12 May lows offer the first support test followed by $25,000.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/