This week’s post is pretty much like last week’s post. In fact, I could quote it almost verbatim but won’t, because we do have some more information. 

The big news this week was the debt ceiling: who was talking, what they were saying, and if we will get a deal before the X date (i.e., when the Treasury runs out of money). When all was said and done, more was said than done and we ended the week pretty much where we started. But there was some good news.

Times are getting scary again. Between the debt ceiling, which is the crisis of the day, and everything else that is out there, people are starting to crack. With the Ukraine war still underway and with worries about China, inflation, and a recession, the debt ceiling looks like just the thing that could finally sink the ship. Even though we have done quite well so far and continue to, the worry is always that the next big thing will be the last straw.

This week, there were two things that warranted comment. The first was the inflation reports, and the second was the debt ceiling. Let’s take a closer look. 

After moderate gains in March, markets continued to rally in April. U.S. markets were up by low single digits, while bond markets were moderately positive. International markets were mixed, with developed markets showing modest gains while emerging markets ticked down. Given the downbeat expectations for earnings at the start of the month, the gains may be a positive sign for the next several months.

Once again, we are about to get the monthly jobs report, which comes out tomorrow. As with every month, this is one of—if not the—biggest economic reports. For the economy, more jobs are good: more workers, more wage income, more spending ability, and so forth. No real downside. But for financial markets? A strong report can be problematic. Those workers—earning and spending their wages—add to demand, which adds to inflation. With the economy slowing and with the Fed suggesting yesterday that it may pause rate increases, tomorrow’s report is especially timely. 

The big economic story today will be the end of the regular meeting of the Fed and what it decides to do about interest rates. Markets are expecting a 25 bp increase, to a range of 5 percent to 5.25 percent, with a slight bet on no hike at all. This is the baseline that the commentariat will be reacting to once the news comes out this afternoon. 

Recently, we have talked about a bunch of headline issues that are not real problems. Today, I want to discuss something that could be a real problem: the pending debt ceiling confrontation. This issue is one we need to understand and pay attention to. But as we will see, once again, it is also likely that the outcomes won’t be nearly as bad as the headlines suggest. It is something to watch but not something to panic about. 

We are at the start of the period when companies release their results for the first quarter of 2023, known as earnings season. With everything going on—inflation, rate hikes, a labor shortage, the weakness of the dollar, a pending recession, the list goes on and on—the results are unusually uncertain this time around. Analysts are struggling to figure out exactly what all this means. 

Following up on Tuesday’s discussion of why the dollar isn’t collapsing and will not do so, let’s take a look at some of the other panic memes showing up in our news feeds. This will be a range of quick hits, as there are a bunch to cover.