Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Weekend reports suggest Biden and McCarthy struck a deal to suspend the federal government's $31.4 trillion limit on US government borrowing in order to avoid a default
This was the 79th time that the US debt ceiling has been raised since 1960.
The in-principle deal will raise this borrowing limit for two years, until after the next presidential election in late 2024, and will include caps on government spending over the same period.
The agreement still keeps non-defense spending roughly flat for the current fiscal year and 2024 and removes budget caps after 2025
Risk assets could rally at the start of the week on the good news of the deal.
Near-term bond yields may also recede after touching 7% recently on default fears.
Markets may however be bumped by delays in passing the deal if we get some opponents in the House or the Senate, still making it difficult for the US to meet its obligations on the X-date of June 5.
Liquidity concerns could also grip markets as the Treasury issues a deluge of bonds to replenish its cash reserves.