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Blockhead Business Bulletin: US Debt Ceiling & June Pause in Play

All eyes are on Washington as the US debt ceiling deadlock inspires less confidence in the dollar

May 21

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A confluence of variables, which can be categorized into three categories, has pushed bond prices lower and global equities higher.

Let's start with the flow.

Borrowers have flocked to primary markets after a week of relative quiet, driving up demand and rates in certain regions near saturation.

Second, there has been a shift in attitude towards some tail risks, most notably regional banks in the United States and the debt ceiling.

Third, the market has yet to see signs of an economic slowdown that would support the rate reduction valued by yield curves, particularly in the US.

"We're still in the period after a lot of monetary tightening has been implemented, but before it actually bites," said Padhraic Garvey, Regional Head of Research for Americas at ING.

"At face value, the USD curve is more vulnerable to (Fed Chair Jerome) Powell’s ‘higher for longer’ message as it still prices 46 basis points of (rate) cuts this year. Our view is thus that the drift higher in rates continues in the near term, but we’re fully aware that any reversion lower could be a violent one," he added, referring to bonds.

Investors, though, were unnerved on Friday, as they prepared to head into the weekend to keep an eye on the United States' debt ceiling standoff.

The US is closer to the deadline to avert default, thus equities in the United States closed down and the currency fell.

For the week, equities gained. But cryptocurrencies have been whipsawed, with Bitcoin trading a little over US$27,000.


The political maneuvering in Washington around the US debt ceiling dispute will be closely watched.

Beyond that, a rate pause at the June FOMC policy meeting is not guaranteed due to hawkish statements from some Federal Reserve officials and the Fed's preferred gauge of inflation still elevated.

Macro Calendar: Key Events in Developed Markets

Source: Refinitiv, ING

🇺🇸US: Markets Nervous Over Fed's June Decision

Over the past week, market interest rate expectations have risen due to positive headlines suggesting a default-averting deal to raise the debt ceiling can be reached and hawkish comments from Federal Reserve officials suggesting a pause at the June FOMC policy meeting is not a given.

Markets will focus on these two problems this week.

Politicians have suggested a debt ceiling vote next week. This would be great, but considering the personalities involved, we must be careful until the transaction is signed and authorized. The market mood will plummet if discussions fail.

The Fed's preferred inflation indicator, the core personal consumer expenditure deflator, GDP revisions, and FOMC minutes are included. This inflation index may continue high, keeping the market on edge about a June interest rate rise.

On the other hand, real consumer expenditure is expected to remain steady in April as activity softens.

Moreover, given the sharp tightening in lending conditions after recent bank failures, recession risks remain high, and markets still expect lower interest rates before the end of the year.

🇬🇧UK: Inflation Figures Will Strongly Influence Rate Path

The Bank of England's decision on whether to stop the tightening cycle, as markets believe, or rise by another 25 basis points will largely hinge on the inflation data scheduled for publication in the United Kingdom next week.

In particular, this depends on whether or not services inflation, which appears to be nearing a peak, suddenly spikes.

Lower petrol costs are excellent news for the hotel industry, which accounts for a sizable chunk of the recent uptick in total services inflation, and wage pressures are slowly easing.

After a very rainy March lowered spending, markets will keep an eye on retail sales, which may rebound.

More broadly, the likelihood of decreased real wage pressure and rising consumer confidence means the worst is behind us for the industry.

Asia Week Ahead: Central Banks Decide on Policy

Policy rate decisions from Korea and Indonesia as well as significant data from Taiwan and Singapore are on tap for the next data week.

Macro Calendar: Key Events In Asia

Source: Refinitiv, ING

🇯🇵Japan: Services Led Growth To Remain Robust

Despite the industrial weakness, flash PMI and core equipment orders data will show service-led expansion in Japan.

Prices should follow suit, with core inflation excluding food and energy, growing faster than headline inflation.

🇰🇷South Korea: Sentiment to Remain Sluggish

Despite the uptick in optimism shown in consumer and business surveys, overall optimism indices are still predicted to be low.

Meanwhile, the Bank of Korea is scheduled to convene next Thursday, but they will likely wait to take action since inflation remains low.

🇨🇳China: Loan Prime Rates to Remain Unchanged

On Monday, Chinese banks will likely keep the 1Y Loan Prime Rate steady at 3.65% and the 5Y Loan Prime Rate steady at 4.3%.

Since the People's Bank of China (PBoC) decided to keep policy rates unchanged, financial institutions will likely keep them stable too. However, higher CPI inflation may be on the horizon, according to the PBoC.

Taiwan: Weak Demand to Weigh on Economy

The still-weak market for semiconductor chips is expected to cause an annual decline in export orders and industrial production in Taiwan of more than 10% in April.

Unless the demand for new models of US smartphones significantly outstrips current production projections, the existing scenario is unlikely to change significantly. With the US economy in decline, this is quite improbable.

🇮🇩Indonesia: Central Bank Set To Extend Pause

Next week, Bank Indonesia is expected to leave interest rates unchanged. Since January, the decline in inflationary pressures has allowed the central bank to maintain the same interest rate policy.

However, if the Indonesian rupiah comes under renewed pressure, the central bank may have to delay rate rises for the time being to maintain foreign exchange stability.

🇸🇬Singapore: Soft Industrial Production Reading Likely

The data on manufacturing output is due next week, and markets anticipate that slow exports will continue to weigh on output for at least another month.

The persistent decline for electronics and petrochemicals could result in another month of lackluster industrial production, mainly accompanied by the slowdown in non-oil domestic exports.


Crypto Rules Roundup: UK Lawmakers Say Treat Crypto as Gambling

A panel of UK lawmakers said in a report that cryptocurrencies should be regulated as gambling. On the heels of the news, the head of a global regulatory body announced that the group would soon submit the first set of international standards for crypto assets.

Zimbabwe's New Gold-Backed Digital Currency is Here

The South African nation is using digital currency in its true sense. Introducing Zimbabwe's new digital currency, backed by gold. The South African nation's finance minister stated that the country's currency is under "enormous pressure" and that inflation is increasing the demand for US dollars in the country.

Bitcoin Whiplashed: Drops Below US$27K as Crypto Bulls Trip

Fearing that decreasing involvement from institutional market makers may fuel more dramatic price fluctuations, traders were whipsawed as Bitcoin, the largest cryptocurrency, fell below US$27,000 for the first time in over two weeks.

Canada Says Accept Crypto Rules or Leave; Binance Opts Out

After last year's chaos, Canadian officials have moved to impose stronger controls on crypto firms, showing that US regulators are not alone in their efforts to rein in the sector.


Malaysia Minute: Tokenization For Industry Growth, Says SC

Highlights from some of the most important ecosystem players include EthKL's monthly gathering & the Security Commission's introduction of its regulated IEO ecosystem launch.

Hong Kong Pilots e-HKD With Ripple Labs, Visa, HSBC, More

Hong Kong has launched the pilot for a digital version of its currency, e-HKD. The e-HKD pilot marks the second stage of Hong Kong's three-stage approach to developing a CBDC.

Bahrain's Regulatory Advantage Draws Whampoa Group to Establish Digital Bank for Digital Assets

Whampoa Group aims to provide innovative digital financial solutions in line with global best practices and set a new benchmark for the industry.

Offline vs. Online: The Eternal Struggle of Cryptocurrency Cold Storage

Ledger's option "Recover" subscription has not gone down well with the crypto industry but exactly how safe are cold wallets anyway?

Ripple Acquires Custody Provider Metaco

Ripple is now the sole shareholder of Metaco following its US$250 million acquisition. Ripple has acquired Swiss-based digital asset custody and tokenization provider Metaco, according to a press release published.


Blockcast 24: Fake Guns & Ink Needles – Crypto Investing Comes With Risks

This week, we discuss the furore surrounding Ledger's latest update, the UK's plans to regulate crypto trading as gambling, and news on a crypto kidnapping in Vietnam that involved GPS trackers, a motorbike crash, and "HIV needles."

Blockcast, our weekly podcast brought to you in conjunction with The Financial Coconut, where we discuss the biggest stories in crypto this week:

01:39 - Ledger’s latest update leaves wallet owners unhappy
14:07 - UK wants to regulate crypto trading as gambling
22:51 - Fake guns & ink needles: cryptocurrency investing comes with risks

Catch the episode here: Blockcast 24

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