Investors are clearly nervous about the potential for default. You only have to look at the 1-month Treasury-Bill yield hitting another record high on Tuesday. But they’re maybe not as nervous as you might expect.
The benchmark S&P 500 is little changed on the month, while the tech-heavy Nasdaq 100 has even eked out a 1% gain. Futures are pointing to another flat open on Tuesday.
That relative calm has been reflected in the latest Bank of America fund manager survey for May.
Equity allocations rose to a five-month high, while a vast majority (71%) expect the U.S. to agree on a deal to raise the debt ceiling before the so-called “X-date”.
Away from the debt ceiling and the Federal Reserve’s data dependency will be tested with the latest retail sales and industrial production figures.
We’ll also hear from what seems like every voting member on the FOMC. Mester, Bostic, Barr, Williams, Goolsbee and Logan all have speaking engagements throughout the day.
They follow four regional central bank presidents who spoke on Monday. All seemed to signal they see interest rates staying high given inflation may be slow to improve and an economy showing any signs of weakness.
Investors continue to bet that the central bank will be cutting rates later this year, with around 70 basis points of cuts priced by year-end, due to some combination of recession or a faster-than-expected fall in inflation.
Policymakers don’t seem to share that view.
