Aurelia Butler

WASHINGTON (Reuters) – The U.S. Treasury Department reiterated Monday it expects to be able to pay the U.S. government’s bills only through June 1 without a debt limit increase, leaving just 10 days for White House negotiators and congressional Republicans to reach a deal.In her third letter to Congress in three weeks, Treasury Secretary Janet Yellen said it was “highly likely” that the agency will be unlikely to meet all U.S. government payment obligations by early June, and as early as June 1, without congressional action to raise the $31.4 trillion debt ceiling, which would trigger the first-ever U.S. default. “With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” she said.Yellen said the estimates, in line with her last letter to Congress on May 15, were based on currently available data, but federal receipts, outlays and debt could still vary. She said she would update Congress as more information became available.U.S. President Joe Biden, who cut short his trip to Asia to negotiate a debt ceiling deal, will meet with Republican speaker of the House Kevin McCarthy at 5:30 p.m., after their aides met for more than two hours on Monday.McCarthy told reporters that the talks were “on the right path” ahead of the meeting.Yellen has repeatedly warned that failure by Congress to raise the federal borrowing limit would unleash an “economic and financial catastrophe” for the U.S. and global economies.She said Treaury’s borrowing costs had already increased, and urged Congress to act as soon as possible to avert the negative consequences that could come even before a default.”We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she wrote. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Creeping optimism that a deal will be reached over the U.S. debt ceiling standoff looks to be just about enough to sustain investors’ risk appetite, although Asian markets on Tuesday could be vulnerable to a reversal. Flash purchasing managers index surveys from Australia and Japan will be released on Tuesday. Service sector activity in both countries has been pretty steady in recent months, but factory activity has been shrinking. Any sign of deterioration could be the excuse investors need to take some profit from the recent rally in stocks and risk assets, especially in Japan.Japanese stocks are on a roll. The Nikkei last week joined the broader Topix index and hit a new 33-year peak, closing on Monday above 31,000 points for the first time since August 1990.The index has had only five down days in the last 29 trading sessions, and is up 10% in three weeks. This has coincided with the yen’s slide to its 2023 lows – the cheaper currency making it more tempting for foreign investors to buy Japanese assets.A pause for breath in both markets would not come as a major surprise. Similarly, might the dollar be due for a correction?U.S.-China relations took a turn for the worse, meanwhile, after Beijing late on Sunday banned U.S.-based Micron Technology Inc (NASDAQ:MU) selling its memory chips to key domestic industries.China’s cyberspace regulator said that Micron, the biggest U.S. memory chipmaker, had failed its network security review and that it would block operators of key infrastructure from buying from the company.This comes as G7 leaders say they will “de-risk” without “decoupling” from China in response to what they call Beijing’s “economic coercion”, reducing exposure to the world’s second-largest economy in everything from chips to minerals.Micron’s loss could be their Chinese and South Korean rivals’ gains, however, as Chinese mainland firms seek memory products from other sources.Chinese stock markets go into Tuesday on the back of a rare solid gain on Monday although the yuan remains under heavy selling pressure, trading for a third straight day through the 7.00 per dollar level.All of this might be moot, however, if Democrats and Republicans in Washington reach agreement on the $31.4 trillion debt limit impasse. Top congressional Republican Kevin McCarthy said talks are “on the right path” and the deal being worked on could be acceptable to his colleagues. But Treasury Secretary Janet Yellen again warned late on Monday that it is “highly likely” that Treasury runs out of cash by June 1, opening up the potential for the first-ever U.S. default. Treasury said on Monday that, as of Friday, it had $60 billion left. Here are three key developments that could provide more direction to markets on Tuesday:- Japan flash PMIs (May)- Australia flash PMIs (May- South Korea consumer sentiment (May) (By Jamie McGeever) More

NEW YORK (Reuters) – Federal Reserve Bank of Minneapolis President Neel Kashkari cautioned that while it may appear like the worst of the banking sector’s stresses are over, history showed more trouble can’t be ruled out. “It’s far too soon to declare all-clear” and say that actions by the Fed, Treasury and other regulators have arrested the surge of bank problems that erupted in March, Kashkari said Monday in an interview with Reuters. That sense of caution is driven by his experience as a top government official involved in helping resolve the financial crisis over a decade ago. Kashkari, who became leader of the Minneapolis Fed in 2016, served at the U.S. Treasury Department between 2006 and 2009, and in 2008 helmed the Troubled Assets Relief Program, which used government money to help stabilize the banking system. The year he took charge of that program was the most acute phase of the crisis, culminating in the failure of investment bank Lehman Brothers in September 2008. On the way to that crisis moment there were false dawns that had led observers to believe the worst was over. “2008 is just imprinted on me,” Kashkari said. He noted investment bank Bear Stearns collapsed in March of that year, noting, “A couple months went by and we thought, okay, that was the worst. And then obviously, things got much worse from there.”The global financial system was rattled in March by the failure of two banks in California that raised questions over how banks, especially regional ones, were navigating the central bank’s very aggressive course of rate rises that kicked off in March 2022. The banking troubles drove the Fed to extend substantial amounts of liquidity to the financial system, and while that lending has backed off from March, the central bank was still extending just over $300 billion in loans to banks as of last Thursday, a number that dwarfs what it lent directly to banks in 2008 during the worst phase of the financial crisis. Fed officials have contended, on balance, that lending as well as the launch of a new program called the Bank Term Funding Program, has put banks on solid footing, allowing policymakers to focus monetary policy decisions on mainly economic factors. “The banks and the banking system are strong and resilient and well-positioned to deal with the challenges they may face, now or in the future,” Fed Chair Jerome Powell said on Friday. But for Kashkari, it’s too soon to say that banks are out of the woods. Still, Kashkari praised the Fed’s response to the troubles, saying “I think we largely got it right, in terms of being able to address the mark-to-market losses that (banks) were facing.” Kashkari was interviewed as the Fed’s June 13-14 policy meeting is looming. The Fed has raised rates aggressively over 14 months in a bid to lower high levels of inflation. But now, with price pressures abating, and amid heavy uncertainty over how tighter credit conditions caused by March’s bank woes will affect the outlook, many policymakers are signaling it may be time to hold off on raising rates again and take stock of how the economy is responding to recent events. Kashkari is open to a pause, but he cautioned that if the Fed doesn’t raise rates in a few weeks, it’s critical that it doesn’t take off the table the option of swinging back into action. “I don’t want us to declare that we’re done” because it’s entirely possible future data could call for more rate increases, Kashkari said. More

Jeremy Hunt is stepping up pressure on the grocery sector to rein in soaring prices, in advance of data likely to show food is becoming a bigger factor than energy in driving high inflation.The UK chancellor will meet food manufacturers on Tuesday to ask the industry to help ease pressure on household budgets, following a similar meeting between the chief secretary to the Treasury and big supermarkets earlier this month.However, the UK government has rejected the case either for imposing price controls, as some European governments have done, or for following France’s example of a looser agreement aimed at getting supermarkets to cap the prices of certain essentials. Instead, the Treasury said on Monday evening that the chancellor would “ask food manufacturers to do what they can to support consumers”, as well as look at reforms to pricing rules that would allow consumers to compare the prices of similar products more easily.Hunt will meet later in the day with the independent Competition and Markets Authority, which is looking at unit pricing practices as part of work on the grocery sector that it began earlier in the year. The CMA is also close to concluding a study of supermarkets’ road fuel pricing.“High food prices are proving stubborn so we need to understand what’s driving that . . . I’m asking industry to work with us as we halve inflation,” Hunt said.Official figures for inflation, due on Wednesday, are likely to show a large drop in the headline rate of inflation — from 10.1 per cent to 8.4 per cent, if the Bank of England’s forecasts prove correct — as the big rise in energy prices that took effect in April 2022 drops out of the annual calculation.

Jeremy Hunt, UK chancellor, will meet food manufacturers on Tuesday to ask the industry to help ease pressure on household budgets © TOLGA AKMEN/EPA-EFE/Shutterstock

But food prices, which have already risen by 19.1 per cent over the past year, are likely to continue rising for some time. The Resolution Foundation said last week that this meant the food price shock would now overtake the energy price shock as the biggest source of pressure on family finances. The think-tank warned it was not clear “that the scale of the increase has been understood in Westminster”. Supermarkets have been accused by some MPs and trade unions of “profiteering” and failing to lower their own even as the cost of raw materials starts to fall in world markets.However, Bank of England officials do not believe such “greedflation” is the reason for the UK’s persistently high inflation, given that corporate profit margins outside the energy sector stand at their lowest as a share of GDP since 2009. Both Tesco and Sainsbury’s reported lower profit for the past financial year, and some analysts point to supermarket price cuts on staples such as milk as evidence that food inflation could be starting to moderate. More

“I am writing to note that we estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Yellen said Monday in a letter to lawmakers. A week ago, Yellen had said it was “likely” the Treasury would exhaust its special accounting measures to stay within the debt limit by early June.The newest letter comes as President Joe Biden and Speaker Kevin McCarthy struggle to hammer out a budget deal. Republicans have vowed not to raise the country’s statutory borrowing limit unless Biden agrees to budget cuts. Negotiators met for more than two hours Sunday evening, and held another session Monday morning, with Biden and McCarthy set to meet later Monday. Borrowing CostsYellen said the Treasury’s timeline estimates are based on currently available data, and she would “continue to update Congress as more information becomes available.”By May 17, the Treasury had used up all but $92 billion in space created under the debt limit through special accounting measures. As of May 18, the Treasury’s cash stood at $57.3 billion. Goldman Sachs Group Inc (NYSE:GS). economists estimated last week the Treasury would reach a key threshold by June 8 or 9, when cash levels drop below the $30 billion minimum that the department is thought to have. Default could happen at any point thereafter, according to the authors.Yellen warned again in her letter that a default would cause severe damage to financial markets and the US economy. She also reiterated language from last Monday’s letter that “we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June.”(Updates with more from letter)©2023 Bloomberg L.P. More