Looming U.S. ‘X-Date’ Frays Global Nerves

Reuters

13:02 JST, May 10, 2023

A look at the day ahead in Asian markets from Jamie McGeever.

A heavy dose of Japanese corporate earnings and a smattering of South Korean economic data give Asian markets a local steer on Wednesday against a backdrop of growing unease surrounding the U.S. debt ceiling crisis.

Full-year Japanese earnings on tap Wednesday include Softbank 9434.T, Toyota 7203.T and Panasonic 6752.T. They follow bumper numbers on Tuesday from some of the country’s biggest trading houses, some of which billionaire investor Warren Buffett has gravitated to recently.

Japan’s Nikkei 225 index has been on a roll lately, last week hitting a 16-month high. It rose 1% on Tuesday and only four of the last 20 trading sessions have been down days.

South Korean unemployment figures for April and current account data for March are the main economic numbers out on Wednesday, while Japan’s FX reserves for April will be released too.

But global markets are getting nervy, inching closer to the X-Date when the U.S. government runs out of cash as stalemate between Republicans and Democrats in Washington deepens the $31.4 trillion debt ceiling crisis.

Treasury Secretary Janet Yellen has repeatedly warned that the X-Date could be June 1, meaning there is barely three weeks between now and a potential U.S. default.

Investors are beginning to wake up to the possibility. One-month U.S. T-bills are yielding 5.50%, the highest in decades and reflecting a premium of around 25 basis points over three-month bills and the upper limit of the fed funds target range.

Famed bond investor Bill Gross said 1-month bills are a screaming ‘buy’ at current levels because history shows a deal will be done, even if it is at the last minute. But what if it is different this time?

Broader markets are feeling the heat. Wall Street and world stocks closed lower on Tuesday, Asian stocks ex-Japan had their biggest fall in two weeks, while gold and the Japanese yen rose.

• Here are three key developments that could provide more direction to markets on Wednesday:
• – South Korea unemployment (April)
• – South Korea current account (March)
• – Japan FX reserves (April)