With US Debt Ceiling Fears Lingering and Some Disappointing Figures, Some Market Sectors Are Showing Signs of Struggling
The UK and Australia increased interest rates to handle ongoing inflation and tech is amongst the sectors fighting the tougher climate
A Brief Overview:
- US debt ceiling fears are starting to bubble
- Australia and the UK hiked interest rates
- Airbnb and ASOS poor earning results means they aren’t making the A-Team
- Disney, Peloton and LinkedIn are facing the tough side of tech
US debt ceiling fears are starting to bubble
US Treasury Secretary, Janet Yellan, warned last week that the debt ceiling limit could be hit sooner than expected.
The debt ceiling is how much the US government can borrow, with the current limit at the eye watering figure of $31.4trillion.
However, with tax revenues down and rampant government spending continuing, the US will likely need to increase their debt ceiling.
The debt ceiling has been raised 78 times in the last 70 years.
However, the consequences if the ceiling isn’t raised, could be significant for those living in the US as well as global markets.
Government salaries, military salaries, medicare payments and social welfare payments would be amongst the government outgoings that could be reduced or frozen.
US government bond payments might also be missed, which would shake global confidence in the ability of one of the most stable bond issuers, (the US government), to repay debt.
After a week that involved a conviction of the ex-President Donald Trump, as well as ongoing regional bank problems, it looks like things are starting to get a bit more wobbly in the US.
Australia and the UK hiked interest rates
Last week, the Bank of England announced an additional 0.25% interest rate hike, taking the official rate up to 4.5%.
This marks UK’s 12th consecutive interest rate raise, whilst being one stubbornly one of the highest in Europe.
The pound also hit a year long high last week, having hit all time lows last September.
Meanwhile in Australia, there was a similar surprise interest rate raise by 0.25%, with inflation also stubbornly high.
Turkey is also struggling with ongoing high inflation, having hit highs of 86% last year and falling to the 46% mark this year. With elections this weekend, the handling of this could be telling.
In more positive news, both China and Thailand have managed to contain their inflation, with the Chinese level at the lowest in 2 years and the Thai back within the targeted threshold of 1 to 3%.
Airbnb and ASOS’s poor earning results means they're not making the A-Team
Airbnb and ASOS’s share prices took a nosedive following announcements of business plans and spending results.
Starting with Airbnb, despite announcing strong first quarter results as bookings reach an all-time high, they’ve now warned of a potential slow down in both their stays and experiences due to the current economic climate.
This caused their share price to plummet, as markets feared for their future.
Meanwhile ASOS, a large e-commerce company based in the UK, also posted their results for the last quarter revealing a drop in sales, as consumers curb spending and ASOS’s own production prices increase.
A new CEO is on the scene to shake things up, which is needed for a rapid turnaround.
Airbnb and ASOS’s weaker earnings reflect the pinch on pockets as the inflation issues continue to rumble on.
Disney, Peloton and LinkedIn are facing the tough side of tech
Disney shares fell dramatically last week following their earnings announcement.
Despite the Disney+ streaming service cutting losses in half, they have lost 4 million subscribers during a period when consumers are tightening their belts.
But there might be hope for the streaming company after announcing a more cost effective, ad based service which is scheduled for launch in Europe in late 2023. This might go some way to attracting the lost subscribers back who are feeling the impact of high costs.
LinkedIn was another tech firm facing a tough week, announcing further layoffs due to reduced ad revenues.
Lastly, Peloton took another blow as they announced the recall of 2 million bikes.
Shares fell 7% after the recall announcement, which is relatively minor considering that their share price is down 95% since their 2020 highs.