US Debt Ceiling Settlement, S&P 500 rises +1.82%

The United States stock market, the S&P 500, closed up +1.82% throughout last week's trading. The resolution of the debt ceiling problem this week allows investors to refocus their attention on economic data and the Federal Reserve's monetary policy going forward. At the end of last week, President Joe Biden approved a bill to suspend the debt limit until 2025. For US economic data, April's JOLTS report showed an unexpected jump in the number of job vacancies, while weekly jobless claims were reported to be lower than expected. Overall, the picture produced by the data is a contradictory one, indicating a US labor market that remains resilient. Taking a cue from the strong jobs data, as well as dovish comments from Fed officials, market participants are now pricing in a 76% probability the Fed will keep interest rates on hold at its June meeting, followed by a 68% chance of a rate hike in July, according to CME FedWatchTool.

Balance of Payments Surplus Increases to USD 6.5 Billion

The Balance of Payments (BoP) surplus widened to USD 6.5 billion in the first quarter of 2023 (compared to USD 4.7 billion in the previous quarter) thanks to positive results in the financial account (FA) balance. On the other hand, the surplus in the current account (CA) balance shrank due to slowing exports. CA recorded a smaller surplus of USD 3.0 billion in the first quarter of 2023 (0.9% of GDP) compared to USD 4.2 billion in the fourth quarter of 2022 as exports slowed to 1% YoY from 8% in the same period. Falling commodity prices and slowing global demand are factors behind sluggish exports. However, a deeper decline in CA was prevented because imports fell by -5.2% YoY due to lackluster investment. FA recorded a surplus of USD 3.4 billion in the first quarter of 2023 thanks to foreign capital inflows, after experiencing a sustained deficit since the fourth quarter of 2021. Foreign inflows into the portfolio reached USD 4.3 billion, dominated by inflows into government bonds. Meanwhile, net direct investment remained stable in the past year at around USD 3 billion.

Slowing Loan Growth and money supply (M2)

Loan growth in the banking system has slowed, with an increase in April of 8% YoY, compared to 10% in March 2023, recording the lowest pace since April 2022. Since the start of the year, loan growth has only grown 1% (versus +3.7% in the same period last year). This slowdown can be attributed in part to the high base effect last year, as well as Eid celebrations which contributed to a reduction in working days, which affected the growth rate. Working capital credit growth decreased to 7.1% YoY, compared to 10.1% in March. Growth in money supply (M2) slowed to 5.5% YoY in April 2023, the slowest in the last four years, which was influenced by slowing loan growth. M1 growth also slowed to 3.4% YoY in April from 4.8% in March.

Key Takeaways:

The United States stock market, the S&P 500, closed up +1.82% throughout last week's trading. This was driven by the resolution of the debt ceiling problem this week, allowing investors to refocus their attention on economic data and the Federal Reserve's monetary policy going forward. At the end of last week, President Joe Biden approved a bill to suspend the debt limit until 2025. Market participants are now pricing in a 76% probability the Fed will hold interest rates at its June meeting, followed by a 68% probability of a rate hike in July , according to CME FedWatchTool.

(BoP) expanded to USD 6.5 billion in the first quarter of 2023 (compared to USD 4.7 billion in the previous quarter) thanks to positive results in the financial account (FA) balance. On the other hand, the surplus in the current account (CA) balance shrank due to slowing exports. In other economic news, loan growth in the banking system slowed, with an increase in April of 8% YoY, compared with 10% in March 2023, recording the lowest pace since April 2022. Money supply (M2) growth slowed to 5.5% YoY. Meanwhile M1 growth also slowed to 3.4% YoY.

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