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Wall Street Slips as Debt Ceiling Talks Weigh on Investor Sentiment

Daily Market Update - (Daniel Ang)

In this daily market update, we delve into the recent performance of Wall Street and explore the factors that contributed to the decline in market indices. The ongoing discussions between the White House and Republican representatives on raising the U.S. debt ceiling have created uncertainty, leading to investors’ edginess and concerns about a potential default. We also examine the impact of Federal Reserve policy on market sentiment, analyze the foreign exchange market, and discuss the performance of major digital assets.

1. Wall Street’s Bearish Trend:
On Wednesday, Wall Street experienced a downward trajectory as talks surrounding the U.S. debt ceiling continued without a resolution. The lack of progress in raising the U.S. government’s $31.4 trillion debt limit, ahead of the June 1 deadline, caused investors to grow increasingly uneasy. This prolonged uncertainty increases the risk of a catastrophic default, which further exacerbated concerns. As a result, major market indices closed lower, reflecting the apprehension in the market.

– The S&P 500 retreated by 30.11 points, or 0.73%, concluding the day at 4,115.47 points.
– The Nasdaq Composite declined by 76.46 points, or 0.61%, settling at 12,483.78.
– The Dow Jones Industrial Average dropped by 253.32 points, or 0.77%, reaching 32,802.19.

2. Federal Reserve Policy:
The Federal Reserve’s policy stance also garnered attention from investors. The release of minutes from the Fed’s May 2-3 meeting indicated that officials had grown uncertain about the need for further interest rate increases. The market interpreted this as a potential signal of a pause in the Fed’s aggressive rate-hiking campaign. Consequently, market participants expect the Fed to potentially pause its tightening measures during the upcoming June 13-14 meeting. Fed Governor Christopher Waller expressed concerns about inflation but suggested that while postponing an interest rate hike is feasible, ending the campaign is less likely.

3. Foreign Exchange Market:
Within the foreign exchange market, the Dollar Index demonstrated strength, reaching a two-month high at 103.91 before closing at 103.86 or 0.32% overnight. Despite the ongoing uncertainty surrounding the debt ceiling negotiations, the dollar’s resilience stems from the robustness of the U.S. economy. The Atlanta Fed projects that the U.S. economy will grow at a steady pace of 2.9% in the second quarter. On the other hand, major currencies experienced declines, with GBP/USD dropping to a five-week low at 1.2358 or 0.42% after recent data indicated a slowdown in UK inflation.

4. Commodity Performance:
In the commodities market, West Texas Intermediate (WTI) crude oil closed higher on Wednesday following an unexpected decline in U.S. inventories the previous week. WTI crude for July delivery settled at $74.34 per barrel, marking a $1.43 increase. Similarly, July Brent crude settled at $78.36. The Energy Information Administration reported a substantial decrease of 12.5 million barrels in U.S. oil inventories, significantly surpassing the consensus estimate of a 525,000-barrel rise.

5. Digital Asset Market:
On Wednesday, most major digital assets experienced a decline in conjunction with the downturn in U.S. equity markets amid the stalled debt ceiling talks. Here’s a snapshot of the performance of some notable digital assets:

– Bitcoin (BTC) traded at $26,294, reflecting a 3.4% decline over the past 24 hours, with a day low of $26,106.
– Ethereum (ETH) fell by 3.1%, settling at $1,795.
– BNB (BNB) dropped by 2.3%.
– XRP (XRP) experienced a loss of 2.1%.
– Cardano (ADA), Dogecoin (DOGE), and Polygon (MATIC) decreased by 2.1%, 2.7%, and 1.7%, respectively.

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