Morning Brief – Debt Default Worries

A risk-on tone came back into the Asian session, with the US dollar gaining and stock markets under pressure as traders started to fret about the possible US debt default scenario on June 1^st.

US Treasury Secretary Yellen gave an interview whereby she noted that “something has to give, it’s essential that Congress raise debt ceiling” and “Default would be ‘huge hit’ to US Economy.”

Some more strong words from Yellen as she noted that “If Congress doesn’t raise debt ceiling, President Biden will have to make decisions on what to do with resources, but there are no good options.”

Bank of Japan Governor Ueda also appeared in the Japanese parliament today. His initial comments weakened the yen despite them being not of much substance or even much of a surprise.

Ueda mentioned that if inflation was sustained and stable the BoJ could drop YCC and trim its balance sheet. He also spoke of ‘heightened inflation expectations’. The USDJPY dropped back to just under 135.00 but is generally on the rise from US dollar strength.

Today we also saw the release of Retail sales in Australia. During Q1, retail sales fell by 0.6%, the most since Q3 of 2009, after a 0.3% drop in Q4, which was a poor number and caused the Aussie to turn lower.

Also, retail sales increased by 0.4% month-to-month to AUD 35.30 billion in March 2023, unrevised from a flash reading and compared with a 0.2% growth in February.

The report also showed fairly strong retail trade and it was the third straight rise in retail trade, as food retailing rose for the 13th month (1.0% vs 0.3% in February).

Retail turnover rose modestly across the states and territories, with most up below 1.0%. On a yearly basis, retail sales added 5.4%, the least since September 2021.