To The Moon

US Debt Limit Negotiation - This is the Truth!

I think the market has finally wisen up to the facade put out by Mr Kevin McCarthy & Mr Biden, as they continued to spar and hope of reaching a “common” ground.

This is so that US Debt Limit could be raised further before the touted x-date of 01 Jun (next Thu) - the supposed day when US Treasury Dept will run out of money.

Both of them presented a “united” front and sounded “positive” with words like “framework”, “progress made” tossed around freely; when facing the media.

Away from the press, a different narrative emerged (see above ).

The Debt Limit crisis remained a standoff with neither side backing down.

No agreement insight.

US market falling since 22 May (Mon)

Who Is Fooled?

Last week and the week before, market watchers gave Mr McCarthy & Mr Biden, the “benefit of the doubts” that a deal could be imminent, and it would be signoff promptly, to avert the “default”.

After 2 more days of “talking” this week and still nowhere closer to an agreement, it confirmed market’s suspicion.

Looking at US market’s past week’s behaviour (refer to above), it has started dipping since last Fri, 19 May when news of negotiation broke down was “leaked” and the teams decided to call it a day.

US pre-market indicators for Wed, 24 May 2023

US pre-market indicators for 24 May 2023 have further indicated that US market will continue to dip today when trading resumes.

The prospect of a default seems to be gaining traction with each “no deal” passing day.

Guess what, there is no appointment planned for today (Wed), 24 May 2023! Doesn’t bode well.

On 02 May 2023, I first posted Will US Debit Limit Cause US Stock Market To Crash? (click to read original post), it looks like this misadventure of Titanic proportion cannot be avoided.

Before US Treasury Dept default materializes, US banks in particular $Morgan Stanley(MS)$ might suffer an “advance” blow today.

What Happened?

• According to UK regulator, Competition and Markets Authority (CMA), 5 international banks have unlawfully shared competitively sensitive information in chatrooms between 2009 & 2013.

• The 5 banks are: (1) $Citigroup(C)$, (2) $Deutsche Bank AG(DB)$, (3) $HSBC Holdings PLC(HSBC)$, (4) $Royal Bank of Canada(RY)$ and (5) Morgan Stanley.

• News of the collusion on UK bonds has shaken the financial markets and raised questions about the integrity and transparency of the bond trading industry.

By colluding, this unlawful act denied (a) taxpayers, (b) pension savers and (c) financial institutions the benefits of full competition for these products, said CMA.

• Morgan Stanley one of the banks named in the scandal, has categorically denied any wrongdoings. It will contest the provisional allegations.

Need I say more? Think its stock price will “crash” when trading resumes in less than 3 hours.

Impact & Damages:

• Potential fines and legal actions from CMA

• Potential fines and legal actions from other Regulators

• Reputation damage.

• Loss of confidence, leading to customer outflow

• Media coverage - to drag out the scandal, the longer MS will be under the unfavourable “spotlight”

• Overall market sentiment & conditions. If US market “crash” due to debt limit breach, Morgan Stanley’s fall from grace will be worse!

Barely 2 months after the bank debacle, another disaster is about to unfold.

Would the US Banking sector be able to withstand another blow before the bigger Debt Limit default next Thursday?

• Do you think Morgan Stanley will attempt to drag out this incident? OR

• Do you think the investment bank will choose to resolve it quickly ?

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