Good morning! In today's news roundup, we'll cover significant developments on various fronts. Debt-ceiling talks in the United States show progress but lack a final deal, a dovish European Central Bank (ECB) official advocates for higher interest rates, and German Chancellor Olaf Scholz endorses Joe Biden for the 2024 presidential election. Let's dive into the details.
Efforts to reach a deal on the US debt limit continue, with President Joe Biden and House Speaker Kevin McCarthy engaging in productive discussions. However, no agreement has been reached as of Monday night. Both leaders expressed their commitment to ongoing negotiations to avoid a potentially catastrophic US default. Treasury Secretary Janet Yellen warned that the Department could run out of sufficient cash by early June, potentially leading to a default by June 1. Despite the absence of a finalized deal, McCarthy acknowledged a positive shift in the tone of the discussions, which Biden also acknowledged in a statement.
Credit Suisse Swaps:
A ruling by a panel overseeing the credit-default swap market states that the government-brokered takeover of Credit Suisse does not constitute a bankruptcy event triggering an insurance payout. The Credit Derivatives Determinations Committee declared that the fire sale of Credit Suisse to UBS does not meet the criteria for a bankruptcy credit event. This ruling applies to both senior and subordinated Credit Suisse swaps. Hedge funds had been purchasing default protection in recent weeks, closely examining the contracts' documentation for potential payout grounds. This is the second time the committee has denied the possibility of a payout in response to market participants' inquiries.
Europe Interest Rates:
Governing Council member Pablo Hernandez de Cos, considered one of the more dovish ECB rate setters, emphasizes the need for higher borrowing costs in Europe to control inflation. De Cos suggests that the process of monetary tightening is already in progress but not yet complete based on current information. To achieve the central bank's 2% inflation target consistently, interest rates are expected to remain high for an extended period. This viewpoint reflects a growing consensus among policymakers that, irrespective of the peak, restrictive borrowing costs are necessary to restore consumer-price growth.
Scholz Backs Biden:
German Chancellor Olaf Scholz openly expresses his support for the re-election of US President Joe Biden, citing the Democrat's positive impact on America. Scholz believes that the division symbolized by former President Donald Trump would also have negative consequences for Germany. In an unusually candid statement regarding a foreign election, Scholz discloses his preference for Biden beyond the upcoming November 2024 US presidential election. Polls indicate that Biden currently holds a slight lead over potential Republican contenders such as Trump and Florida Governor Ron DeSantis. Scholz highlights Biden's extensive experience in public service, stating that it equips him with the knowledge to prevent global conflicts.
These are the key topics making headlines today. Debt-ceiling negotiations in the US continue to unfold, the credit-default swap market ruling affects Credit Suisse, the ECB leans towards sustained higher interest rates, and German Chancellor Olaf Scholz shows his support for Joe Biden's re-election. Stay tuned for more updates on these and other important developments shaping the world around us.