President Joe Biden and top Republican Kevin McCarthy are set to restart discussions on the debt ceiling deal as the possibility of a United States default becomes increasingly imminent. This alarming situation poses a significant threat to global financial markets, but so far, the US stock market and the broader crypto sector have remained relatively unaffected. However, a new analysis from JPMorgan warns that the lack of market movement could indicate a potential surge in volatility as the default deadline approaches.
Financial Markets Remain Volatile
In a note to clients on Monday, JPMorgan’s equity macro strategy team expressed concerns that equities may be slow to factor in the risks of a contested debt-ceiling rise and the growing probabilities of a technical default. As the US gets closer to the deadline, these risks could sharply re-price, leading to broader market turbulence.
Bank of America Research, on the other hand, highlights that debt ceiling concerns typically impact stocks when the X-date, the day the US is expected to default on its obligations, is within two weeks. Moreover, Goldman Sachs projects that the Treasury’s cash balance can fall below $30 billion by June 8-9, a threshold historically used to project the deadline. While speaking about the development, Goldman Sachs’ economic research team was quoted as saying:
Growing Concerns Over US Debt
The US stock market did fall when preliminary talks between the two parties — President Biden and Speaker of the House Kevin McCarthy — broke off on Friday in Biden’s absence. However, overall the declines have been contained as the S&P continues to trade within the range it has been in for the past six months, which is roughly around 3,800-4,200.
The crypto market has also remained resilient with Bitcoin’s price flirting around the $26-27k range and Ethereum mostly trading close to the $1800 price mark. But, as highlighted by JP Morgan’s latest analysis, a major collapse in the US stock market might have a large ripple effect on the cryptocurrency market as well, which could result in Bitcoin breaking past its support level of $25,000 and hitting a new monthly low.
In response to the urgency of the situation, President Biden and McCarthy are scheduled to meet at 5:30 P.M. EST (21:30 GMT) on Monday, May 22. This meeting follows a phone call between the two leaders on Sunday, emphasizing the need for prompt decision-making regarding the debt ceiling issue. The outcome of these negotiations will determine the course of action to avert a potential default and the subsequent effect on the global financial landscape.