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US debt ceiling and it’s effects on ASX

The headlines have been warning for weeks about a possible debt default by the United States. Negotiations have become contentious, with a deadline that could come as soon as June 1.

The stock market is bracing for a negative impact as uncertainty looms over the US debt ceiling being raised. Australian shares are expected to drop as markets grapple with this precarious situation, heightening concerns among investors. Looking ahead to the coming week, there is a notable lineup of robust economic data to be released. However, the prevailing focus remains on how the unresolved issue of the US debt ceiling will reverberate across the market.

Shane Oliver, Chief Economist and Head of Investment Strategy at AMP shed light on the potential consequences: “The business conditions PMIs for April in the US, Europe, Japan, and Australia, scheduled for release on Tuesday, will be closely watched for any signs of growth slowdown following a period of notable strength. Additionally, investors will be keenly observing any indications of easing inflationary pressures.”

Amidst this backdrop, the Federal Reserve’s release of the minutes from its latest meeting on Wednesday gains significant importance. These minutes are expected to confirm a substantial shift towards a more accommodative stance and a heightened dependence on data, as the Federal Reserve grapples with the uncertainties surrounding the US debt ceiling.

Furthermore, the market will be on the lookout for various economic indicators. Tuesday’s data is projected to show a decline in new home sales, while Friday’s figures may reveal a slight dip in core private financial consumption deflator inflation for April. Additionally, soft durable goods orders are expected to be reported on Friday.

With the Reserve Bank of New Zealand (RBNZ) also convening on Wednesday, attention will turn to their decision on raising the cash rate by 0.25%, potentially reaching 5.5%. This event adds to the overall market unease caused by the US debt ceiling dilemma.

As the Australian market awaits these developments, it is anticipated that the uncertainty surrounding the US debt ceiling and its potential impact on the global economy will cast a shadow over the stock market, leading to a decline in shares. Investors will closely monitor the situation, preparing for potential volatility and making informed decisions amidst these challenging circumstances.

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