Tick Insights

We have seen it before

Since 1960, the US has resolved debt limit issues 78 times. Biden thinks he can get away easily too – he has added $3t to US debt since Jan 2021. But this year Republicans run the House and are leveraging their right to veto. They want Biden to reduce spending or the US will default. Both parties sound tough but House Speaker McCarthy (Rep) on May 17 said it is possible to reach a deal by the end of the week. If US defaults, could Biden win the next election?

We think a default, if it happens, would be technical in nature. If the issue is going to be resolved, what could happen to the market? The last debt ceiling drama was in 2011 during the Obama era. AFTER the debt ceiling was lifted, the stock market went down by 15% and 10-year treasury yield dropped by 1%. iShares 20 Plus Year Treasury Bond ETF (TLT US) rose 33% in 2.5 months.

As bad as it was, the 2011 crisis provided investors with a reference. Investors can bet on rebounds if the market corrects. For bargain hunting, clients can use Nasdaq ETF QQQ and S&P ETF SPY. Singapore clients can use CFD for leverage. HK clients can use index futures.

Are the traders/issuers nervous? No.
We checked using structured product, we have not seen a significant increase in bids from banks. This means issuers are NOT paying up for downside puts.

Here are some details regarding the implications of the potential default.

• A Treasury Note missing a payment can be delivered into a futures contract, according to CME.
• Compensation for Delayed Payments: Congress need to explicit pass laws to provide compensation to holders of securities subject to a delayed payment on Treasury debt.
• There is no workaround. Biden invoking the 14th Amendment, the Treasury issuing a trillion dollar coin, the Fed swapping out securities under technical default for others, none of these are useful solutions.

Market News

• Wall Street stocks finished sharply lower on Tuesday and short-term Treasury yields shot up as investor jitters grew over a lack of progress in U.S. debt limit talks. Dow Jones fell 231 points, S&P 500 was down 47 points and Nasdaq Composite lost 160 points.

• Representatives of U.S. President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday, as the deadline drew closer to raise the government’s $31.4 trillion borrowing limit or risk default.

• Oil prices rose after Saudi oil minister Prince Abdulaziz bin Salman told market speculators on Tuesday they should “watch out,” bolstering fears that there could be future challenges in the market.

Market Views

• Asia-Pacific markets slid on Wednesday morning. Hong Kong’s Hang Seng index fell 1.05% and the Hang Seng Tech index shed 1.16%, dragged by healthcare and industrial stocks. Nikkei 225 slid 1.08% even as the country’s business sentiment among manufacturers turned positive for the first time in 2023.

• The Reserve Bank of New Zealand increased its benchmark policy rate by 25 basis points to 5.5% on Wednesday. This is its 12th straight rate hike since October 2021, and in line with expectations from economists polled by Reuters.

Dow Jones Index
(CFD Symbol: US30)

Trend:

Recommendation:

Last: 33,102

Target price:

Protective stop:

Outlook
Price is trading below the falling 20EMA that hints at potential downside ahead. A violation of the support at 32,912 will target for 32,080. Stochastic remains weak and a bearish crossover is likely. MACD is still bearish and is moving lower.

Trading Idea
Wait for better trading idea.

Hang Seng Index
(CFD Symbol: HK50)

Trend:

Recommendation: Short @ 19,840

Last: 19,197

Target price: 18,850

Protective stop: 19,500

Outlook
Price broke below the consolidation zone today with a bearish candle. We would like to see a firm close to confirm the breakdown to 18,810. Stochastic is falling and MACD remains bearish.

Trading Idea.
Sell 19,840 for 18,850 with a stop above 20,000. Entry was filled on 22 May. Shift stop lower to 19,500.

Nasdaq 100 Index
(CFD Symbol: USTec)

Trend:

Recommendation:

Last: 13,695

Target price:

Protective stop:

Outlook
Price could have formed a possible price top at 13,923. We think that price is going to have a price correction to 13,460. Stochastic is at the overbought zone for extended period. MACD is still strong and bullish.

Trading Idea
Sell 13,790 with a stop above 13,940 for 13,460.

FTSE 100 Index
(CFD Symbol: UK100)

Trend:

Recommendation: Short @ 7772

Last: 7728

Target price: 7670

Protective stop: 7820

Outlook
Price was resisted by its overhead 20MA resistance point. As long as it moves below the 20MA, we are likely to see price testing 7569. Stochastic remains weak. MACD is still bearish and is moving lower.

Trading Idea
Sell 7772 for 7670 with a stop above 7820. Entry order was filled on 18 May.