USA: Low Inflation, yet Challenges Persist

In this article, we will address the main news of the week, such as American inflation, the political dispute in Washington over the debt ceiling, the strategy of an Arab investment fund against US stocks, the launch of the Bard project by Google, and the situation of the gold market. The goal is to provide updated information on these topics and explore their possible impacts in the near future.

US inflation data falls below expectations, but there are other problems.

There has been a slowdown in consumer price growth in April compared to the same period last year. This trend of more moderate inflation is leading to the expectation that the Federal Reserve will pause its interest rate hikes after a quarter-point increase last week.

Another factor contributing to this view is the slight increase in initial jobless claims last week, which stood at 264,000, surpassing expectations of 245,000. Additionally, producer prices rose slightly less than anticipated in April, registering a 2.3% increase compared to the previous year, compared to expectations of 2.4%.

Investors have been driving the stock market this year, anticipating a possible change in direction by the Federal Reserve and a reduction in interest rates in the second half. However, it is important to be aware of other factors that may affect the economy, such as rising commodity prices and geopolitical instability.

New problems arise

One pending issue is the resolution of the dispute in Washington over the debt ceiling, with lawmakers discussing whether to condition the increase in the limit on spending cuts. Biden administration officials have warned that the government may run out of options to meet its obligations as early as June 1 if Congress does not raise or suspend the limit.

The one-year US credit default swap (CDS) recently surged, exposing the credit risk of the US and even being more expensive than that of Brazil. This reflects investors’ concerns about the US’s ability to honor its financial commitments and could lead to an increase in interest rates and a devaluation of the dollar.

CDS EUA 1Y (Investing) 

Basically, this contract protects against a possible default. The fact that its value has risen so much indicates that investors are buying large amounts of this protection.

Credit default swaps, also known as CDS, are a type of financial instrument that transfers credit risk from an issuer to a buyer. When the value of a CDS rises, it indicates an increase in risk perception by investors. This can be an indication that the insured entity is in financial difficulties or that there are concerns about the economy in general.

In summary, inflation data is within expectations and gradually declining, while the weekly unemployment report shows an increase despite a strong payroll. Could this be a sign of a soft landing for the economy? However, pessimistic views turn to other huge challenges such as credit tightening, the risk of recession, the banking system crisis, and the debt ceiling impasse.

Other News of the Week

Arab Fund Bets Billions Against US Stocks.

An investment fund linked to a prominent member of Abu Dhabi’s royalty recently took a billion-dollar short position in US stocks, according to sources familiar with the matter. The strategy is a bet against the US stock market, reflecting growing concerns about a possible recession that could put pressure on the markets.

Google Launches BARD.

Alphabet Inc. Class A (NASDAQ: GOOGL) shares rose 4.8% after Google unveiled a series of artificial intelligence projects aimed at strengthening its competitive position amid fierce competition, including Microsoft (NASDAQ: MSFT) and other evolving market competitors.

The highlight was the launch of BARD, a platform similar to ChatGPT. The announcement was well-received by investors and technology experts, further raising expectations for the company’s innovation and growth.

Gold Analysis.

Despite the recent downward movement, gold continues to respect the upward trendline and is currently trading above the 21-period moving average on the daily chart. Despite strong resistance at $2,050.00, the chart pattern forming suggests room for further breakout attempts, even though it has failed three times.

XAUUSD, 1D (TradingView) 


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