The US stock market has slumped this week with a move to the 33,000 level.
Stocks are struggling in the United States as investors fear a looming recession. The slowing of the inflation figures boosted the stock market. Still, worse-than-expected data for the industrial sector was a headwind.
US30 – Weekly Chart
The Dow Jones fell from highs above 34,000 to 33,000, and a weekly close here could lead to further lows. After the late 2022 break above the downtrend line, the uptrend is still intact but needs support at the 32,000 level to move higher.
Retail sales data showed a 1% decline in December, similar to November, and a gloomy outlook for a consumer-driven economy. PPI pricing data also showed a drop in business activity in December.
There is also uncertainty following news that the US had once again hit the debt ceiling. The US Treasury announced it had hit the debt ceiling imposed by Congress on Thursday and is now taking extraordinary measures to meet obligations. Treasury Secretary Janet Yellen said she expects efforts to stall a US debt default until around June, when Congress will be pressured to raise the debt ceiling.
The Treasury will run down its Treasury General Account, a checking account with the Federal Reserve. It will run out of cash around June. The TGA is a liability on the Federal Reserve balance sheet, which is expected to affect the Fed’s tightening efforts.
“If the TGA is run down because of the debt ceiling, that will offset for a while some of the security maturation,” said Joe Lavorgna, chief economist at Nikko Securities.
The TGA is sitting at $350 billion, which is well lower than where the Treasury would like it to be with a year-end target of $700 billion. The Federal Reserve is reducing its balance sheet by $95 billion a month via Quantitative Tightening, allowing up to $60 billion of Treasuries and $35 billion of mortgage-backed securities to roll off.
