February 15, 2023: Concerns of Further Monetary Tightenings Increase

US Debt Default Would Lead to Economic and Financial Catastrophe.

US Treasury Secretary Janet Yellen has warned US county leaders that citizens could lose their jobs and federal benefit payments if Congress allows America to default on its obligations by failing to raise the debt ceiling.

Yellen told the National Association of Counties on Tuesday, February 14, that the United States can pay its bills until at least the beginning of June by employing extraordinary cash management measures. She added, “According to my assessment, our default may result in a financial and economic catastrophe, and many of America’s residents may eventually lose their jobs.” Yellen she stressed the need to raise or suspend the ceiling without conditions or wait until the last minute to prevent an economic disaster.

Its worth mentioning that the US has never failed to pay all of its bills on time since the founding of the US Treasury in 1789. The US public debt reached a ceiling of $31.4 trillion amid a confrontation between the Republican-controlled House of Representatives and the Democrats led by President Joe Biden.

US Consumer Price Index Rose 0.5% in Line With Expectations.

US inflation rose as consumers felt the effects of rising fuel, housing, and utility costs. From 12 months to January, the index rose 6.4%, the smallest increase since October 2021. The actual rate was slightly higher than the 6.2% forecast, yet still below December’s annual inflation levels amounted to 6.5%. The US Federal Reserve officials said on Tuesday that the bank needs to continue to gradually increase interest rates to overcome inflation, as both “Patrick Harker” President of the Federal Reserve in Philadelphia, and “John Williams” President of the Federal Reserve in New York, said that the US Central Bank still has to work to curb rein in inflation.

Traders and investors are betting on at least two more rate hikes of 25 basis points this year, with interest rates peaking at 5.28% by July. Investors’ concern in the US market increased after two Federal Reserve officials said that the United States needs to prioritize suppressing inflation over risks to economic growth.

Gold Fell Amid Concerns of Higher Interest Rates.

Gold prices fell on Wednesday, February 15, as the dollar rose after data showed that inflation rose in the United States last month at the slowest pace since late 2021, which increased investor concerns that the Federal Reserve will continue to tighten monetary policy. Spot gold prices fell 1.5% to $1,834.96 an ounce. High-interest rates discourage investors from putting their money in non-yielding assets such as gold.

The dollar index rose 0.2%, making gold denominated in the US currency more expensive for holders of other currencies. Silver prices in the spot market fell 0.5% to $21.74 an ounce, platinum lost 0.4%, recording $927.06, and palladium fell 0.2% to $1493.76 after hitting its lowest level since August 2019 in the last session.

US Indices Close Mixed.

The performance of US indices varied in Tuesday’s session after the announcement of inflation data in the United States. January figures did not do much to change expectations about the US Federal Reserve’s policy towards raising interest rates. The data released showed that the consumer price index increased by 6.4% annually in January, compared to expectations of 6.2%. Still, it came in below the yearly inflation levels in December, which amounted to 6.5%.

The Dow Jones index fell by 0.46% in Tuesday’s session, consolidating at 34,089 points and remaining above the 50-day moving average. Six main sectors declined in the index summing in a 0.9% decline. On the contrary, the energy sector witnessed an increase by 0.8%, supported by Chevron shares, which recorded gains of 1.3%.

The S&P 500 index closed flat at 4,136 points, amid a decline in 7 sectors out of 11 major sectors in Tuesday’s session. The real estate sector topped the list of losers, with a drop of about 1%.
69% of companies beat expectations after more than half of the companies included in the S&P 500 announced their financial results for the fourth quarter. On the other hand, the Nasdaq Composite Index rose by 0.57% to 11,960 points in Tuesday’s session, with six main sectors rising out of 12 industries. The index has increased by 14% since the beginning of this year. Boeing shares rose 1.3%, its highest close in nearly a year after Air India unveiled a deal to buy 220 of its passenger planes.

Japanese Nikkei is Falling with the Decline of US Stock Futures.

The Nikkei fell Wednesday, February 15th, tracking the impact of a reduction in US stock futures as investors digested pro-tightening comments from the Federal Reserve after the US inflation report. The jump in US bond yields last night contributed to the rise in Japanese bank stocks, but it hurt real estate stocks.

The Nikkei index closed down 0.37% at 27,501.86 points after rising 0.43% earlier in the session. The broader Topix index lost 0.27% to close at 1987.74 points after rising to 1999.66, its highest level since the first of December. US stock futures fell 0.5%.

Oil Fell After a Jump in US Crude Inventories.

Oil prices fell in early Asian trading on Wednesday, February 15th, after falling by more than $1 a barrel in the previous session, as sector data indicated a much larger-than-expected increase in US crude inventories. Brent crude futures fell 20 cents to $85.38 a barrel, while US crude futures fell 19 cents to $78.87.

US crude stocks rose by about 10.5 million barrels in the week ending February 10, according to market sources, citing American Petroleum Institute figures on Tuesday. This is a much more significant increase than the 1.2 million barrels expected by analysts, which likely indicates a drop in fuel demand. Gasoline stocks rose by about 846 thousand barrels, while distillate stocks rose by about 1.7 million barrels.

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