May 29 REX Wire Market Outlook

Debt ceiling proposal sees BTC reclaim three-week high

The big news today is the debt ceiling deal thrashed out over the weekend, potentially ending the deadlock and giving the markets much needed clarity—as well as avoiding the near-unthinkable possibility of a default in the next week.

Republican House Speaker Kevin McCarthy called the deal a compromise "worthy of the American people". Members of Congress must now vote for the package. While Democrats control the Senate, Republicans control the House, and some are unhappy with the concessions made by McCarthy.

Nonetheless, markets seem to believe the deal will pass and have reacted positively.

Bitcoin Recovers

Over the weekend, bitcoin pulled away from its local low, sub-$26,000, and pushed back above $28,000 as news of the tentative debt ceiling deal sunk in. Last week ended with a decisively green candle. Bitcoin's daily MACD crossover has been confirmed, as has the 200-week moving average retest. Sentiment has flipped bullish once more.

Bitcoin now faces the same resistance band where it found rejection in April. The $28-30k level is probably the most important area of the entire last cycle, and a critical price to overcome to confirm the bull market.

Due to public holidays in the US and Europe, major markets will be closed until tomorrow (including stocks and the all-important US bond market), but as a 24/7 market, bitcoin provides a good indication of how risk assets will react. Markets in Asia have ticked upwards.

Nonetheless, there's likely to be fallout even if the deal does pass without further delay. One point critics have made is that the US government's ability to take out more debt necessarily means trillions of dollars of new bonds being dumped on the market, depressing prices and likely causing banks further problems.

What Banking Crisis?

According to former Dallas Fed President Robert Kaplan, we are headed into the "third phase" of the banking crisis—which has almost completely dropped out of the news cycle recently, but which remains a very real problem. Tens of billions of dollars are being moved out of banks (primarily regional banks) every week, with much ending up in money market funds—which now hold a record $5.4 trillion.

A large percentage of regional banks are now underwater on their loan books, having locked up money in long-term treasuries back when interest rates were lower. Since they are reluctant to make new loans, small businesses are set to suffer.

Large corporations, which are served by the too-big-to-fail banks, will continue to receive the money they need.

Subscribe to our newsletter and follow us on Twitter.