As the possibility of a United States default approaches due to the deadlock on the debt ceiling deal between President Joe Biden and top Republican Kevin McCarthy, it poses a significant threat to financial markets worldwide. Surprisingly, the US stock market and the broader crypto sector seem relatively unaffected by this alarming situation. However, a new analysis from JPMorgan warns that the apparent lack of market movement might indicate a potential surge in volatility as the default deadline approaches.
Financial markets have remained volatile, and the JPMorgan equity macro strategy team recently expressed concerns in a note to clients that equities might be slow to factor in the risks of a contested debt-ceiling rise and the growing probability of a technical default. As the US gets closer to the deadline, these risks could sharply re-price, leading to broader market turbulence.
In contrast, Bank of America Research highlights that debt ceiling concerns typically impact stocks when the X-date – the day the US is expected to default on its obligations – is within two weeks. Furthermore, Goldman Sachs projects that the Treasury’s cash balance can fall below $30 billion by June 8-9, a threshold historically used to project the deadline. Goldman Sachs’ economic research team expressed that markets are likely to price in additional risk before the debt limit is finally raised.
While the US stock market fell when preliminary talks between President Biden and Speaker of the House Kevin McCarthy broke off on Friday, overall declines have been contained. On the other hand, the crypto market has remained resilient, with Bitcoin’s price fluctuating around the $26-27k range and Ethereum trading close to the $1,800 price mark. However, JP Morgan’s latest analysis emphasizes that a major collapse in the US stock market might have a considerable ripple effect on the cryptocurrency market, potentially resulting in Bitcoin breaking past its support level of $25,000 and hitting a new monthly low.
Acknowledging the urgency of the situation, President Biden and McCarthy have scheduled a meeting for May 22, following a phone call emphasizing the need for prompt decision-making regarding the debt ceiling issue. The outcome of these negotiations will determine the course of action to avert a potential default and the subsequent effect on the global financial landscape.
This market situation serves as a reminder to always conduct thorough research before investing in cryptocurrencies. Neither the author nor the publication assumes any responsibility for personal financial loss resulting from investment decisions made without diligent research.
Source: Coingape
