The
Republicans and the Democrats have reached a bipartisan deal on the debt
ceiling that is expected to be raised in a timely manner in order to enable the
U.S. government to resume borrowings. Federal budget nondefense spending in the
fiscal year of 2024 will be left roughly at the same level as 2023, while
spending is expected to be raised by 1% in 2025. Republicans pushed cuts to the
social programs as a part of the deal. Some recipients of the government aid
assistance will face additional requirements, and some assistance will be
paused.
The U.S.
consumer activity was partially supported by the assistance funds released by
the Federal government. Bloomberg estimates the chances of a recession in the
coming 52 week to be at 65%.
The
increase of the debt ceiling suggests that borrowings of $1.1 trillion will be
made by the end of 2023. This is a very large amount of the first-class
securities that will certainly elevate investors’ attention. This may also
prompt the capital to move from bank deposits to the debt with higher yields,
aggravating U.S. banking sector troubles. This, in return, may increase volatility
in the market and increase the economic slowdown.
Interest
rate hikes expectations by the Federal Reserve (Fed) keeps speculations muted.
The battle of the Fed with high inflation stopped the rally of the risky assets
that started in late 2021. However, the Fed has little choice, as persistent
high inflation will eventually lead to economic turmoil. Rising borrowing rates
also affect the Eurozone, capping its trade activity and inflating costs.
All this is
translated into a very tense situation in the market with remote hopes for a
rally in the crypto market. Traders should not be fooled by the recent spike of
Bitcoin prices above $28,000 per coin. There are always more buyers in the
market than sellers. So, it will take some time for the prices to pass strong
support levels. Such situations are likely to occur after a spike when the
bulls have no more resources to support the rally. It seems that this is the
moment now. Thus, BTC prices are likely to return to $24,000 per coin with a
high risk of dropping below this level.