Nasdaq 100 doesn’t wait to ask ‘are we there yet?’

Aside from a continuing surge in AI stocks boosting the Nadaq 100, stocks were generally mixed this morning as work on the Hill turned to turning the debt ceiling deal into a final agreement in both Houses of Congress. Don’t crack the champagne just yet – the deal isn’t sealed yet. Crude oil prices were down by more than 4% on the growth outlook if the US defaults, and skepticism about further supply cuts this week's OPEC+ meeting.

Debt deal, ‘are we there yet?’

President Biden and House Speaker McCarthy reached a deal on Sunday that suspends the debt ceiling until January 2025, putting off another potential showdown until after the 2024 presidential election. Wall Street hasn’t popped the champagne corks quite yet, so expect more drama. This deal still has to move through Congress this week. Obstacles include a House Rules Committee today, a vote by the full House of Representatives tomorrow, and a Senate vote stretching into the weekend. Expect lots of political show-boating before a deal gets done.

The details of the deal, reported by Reuters, suggests something for all political stripes: capped spending over the next two years; a speeded up permitting process for some energy projects; pulling back unused Covid funds; re-introducing work requirements for some aid programs; and, reducing the amount of money available for the IRS to hire auditors. Nonetheless, interest payments will still eat up an increasing share of the federal budget in the next few years, and growing challenges to paying a rapidly expanding interest obligation will complicate future debt ceiling talks. So, we’re not really ‘there’ yet…

Bottom line – risk-off

Financial markets oscillate between risk-on and risk-off, with the rising VIX index, Wall street’s fear gauge, rising from a recent low of 17 to 18.3. We could move to risk-on this week if the debt ceiling deal is approved, with tech stocks likely to benefit most.

TODAY’S MAJOR MARKETS

Equity markets

• While the broadly based S&P 500 and Russell 2000 were flat and down 0.6%, respectively, the Nasdaq 100 rose 0.4%

• The so-called 'magnificent seven’ AI stocks led the way in tech: Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia

• The VIX index rose 3.2% to 18.0
• The FTSE 100 and DAX were off 1.4% and 0.3%, respectively

Currencies and Bonds

• The dollar index was unchanged against a basket of currencies this morning, after advancing 1% last week
• Yields on 2-year and 10-year Treasury ticked lower, to 4.48% and 3.69% respectively

Commodities

• Gold prices bounced back after a period of weakness, up 0.7% $1,977 per ounce
• Crude oil prices fell 4.3%, to $69.5 per barrel, at the low end of the year-to-date trading range
• Grain and oilseed sectors were mostly lower, reflecting the broader weakness in the commodities

China’s New Development Bank

• Saudi Arabia is in active talks to join China’s New Development Bank (NDB), also known as the ‘BRICS’ bank intended to service Brazil, India, China and South Africa, in addition to the UAE, Uruguay, Bangladesh, and Egypt
• These talks are seen as a significant step toward including Saudi Arabia in BRIC as the largest global crude oil exporter
• That would greatly diversify the financial options of BRIC nations to conduct business with the yuan, displacing the dollar in their transactions
• Saudi Arabia’s application to join the BRIC coalition is expected to be taken up at the August meeting of the group
• The NDB just issued its largest yuan-denominated bond Monday, after taking steps to add Saudi Arabia
• This latest bond is for 8.5 billion yuan ($1.2 billion), indicating an increased demand for issuing and lending based on the yuan

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]

Market outlook by Paul Walton, Financial Writer: [email protected]