Last week equites were relatively subdued. Will volatility increase this week given the multitude of high-profile technology companies reporting? META, MSFT, AMZN and GOOG all report profits in the next three days and any surprise can have an outsized impact on the markets.
Moreover, the Fed is going into its mandatory blackout ahead of next week’s FOMC meeting. It is largely expected there will be another 25-bps increase and then a pause. Later in the week initial estimates of first quarter GDP and the ancillary inflation data points are released. What will this data suggest, data that is perhaps released into a vacuum given the Fed blackout?
And then there is the debt ceiling debate. Last week the opening salvos were fired. It is largely anticipated the vitriol will greatly increase but a default will not occur. There is a near unanimous consensus a default may be catastrophic, perhaps forever altering the current financial system.
Speaking of potential changes in the financial system, last week Richmond Fed President Thomas Barkin’s remarks about the dollar as the reserve currency were referenced. Barkin stated “a lot of other countries are not happy about the dollar being the global reserve currency because the US has weaponized the greenback through sanctions on some businesses.”
Barkin further stated “I think the rest of the world would love to have a different reserve currency.”
Friday the IMF updated the database of world foreign exchange holdings, and the data indicated the dollar’s share of these reserves have fallen to 58% by the end of December, the lowest percentage since 1995. The IMF further stated last year’ s slide was 10 times greater than the average speed of the past two decades.
It has been postulated this decline was predicated by the US freezing Russia’s currency reserves and seizing the assets of Russian oligarchs without “due process” of law that has stood for over 80 years, actions that undermined the confidence in the dollar, especially among developing nations that are major holders of dollar reserves.
The US has greatly benefited during the last 80 years of being the only reserve currency. The possible ramifications of such actions are infinite.
Perhaps of the immediacy is the question as too who will buy our debt. The US has a $31.5 trillion national debt and the major buyers (other governments and central banks) are no longer buyers. The data clearly states the only large and consistent buyers remaining are US pension funds and insurance companies and their purchasing power is finite.
The world has radically changed, the outcome of such will not be known for years where perhaps yesterday’s benchmarks are no longer valid. If Washington continues to go down the path of no debt ceiling compromise, the velocity of change may radically accelerate, an acceleration that may be faster than the rate of last year’s decline of the dollar being a country’s foreign reserve.
What will happen today?
The economic calendar is comprised of several manufacturing indices, housing data, a sentiment survey and initial estimates of first quarter GDP and the ancillary data associated with the release.
Last night the foreign markets were mixed. London was down 1.01%, Paris down 0.07% and Frankfurt 0.07% China was down 0.78% Japan up 0.10% and Hang Seng down 0.58%.
Futures are down about 0.3% ahead of a big earnings week. CNBC reports 76% of S & P 500 that have reported profits have met down dumbed estimates. For the period, CNBC reports earnings should decline about 5.6%. The 10-year is off 2/32 to yield 3.54%.
