The U.S. House voted yesterday to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now. The bill was passed 285-144 in favor of, which pushed the $16.4 trillion limit till May 19. Now this bill lies firmly in Senate’s court, with Senate Majority Leader Harry Reid saying that they will pass the bill unchanged.
Though nobody doubted that the House would fail in its push, market did responded well after the announcement. US Stocks rallied, just when S&P500 was looking precariously close to break below the intraday support close to 1,488.
S&P 500 Futures 30 Minutes
However, the reactionary rally wasn’t strong enough to push a new high on S&P 500 futures. Price face significant resistance before the 1,495 ceiling, and was looking to head lower before shocking news came from Apple Inc. Previous week we’ve seen how Apple’s share prices pulled Nasdaq down when S&P and DOW were climbing. This week we saw the true extent of the influence of Apple Inc. on the rest of the US equities, and it is not a pretty sight. Apple reported 4Q EPS of $13.81 versus $13.53 expected, with outlook downgraded. The bearish impact is painfully obvious, with a long red candle formed immediately, wiping out all the gains post Debt Ceiling postponement. We learned something new today – Steve Jobs’ legacy sways market opinions much more than the US Government. If the previous sentence does not sound right to you, then perhaps an alternative explanation is this: The market feels that kicking the can down the road is getting tiresome.
The implication of this new revelation is that we should not be expecting strong bullish revival when the May 19th Bill is passed by the Senate, nor when Obama put his signature on it. Will the eventual resolution of Debt Ceiling be enough to channel more bullishness in the market? Based on the lack luster response yesterday, traders could have already priced that scenario way in, thus explaining higher reaction from Apple than the postponement of the Debt Ceiling.
This theory is corroborated with Treasuries , showing almost no difference in trend. Looking at this chart, without any markings, one would be hard pressed to identify any significant event that has taken place. The mild dip in prices post US Government development is in-line with all other troughs we’ve seen.
Perhaps the only development that will truly shock market now is a failure to raise debt ceiling and a subsequent US Debt default. Or maybe all the assumptions above are false and Apple Inc is truly greater than the US Government now. If that is the case, better grab your iPad minis and iPhone 5s and store under your bed for the unveiling of the eventual world reserve currency.
The 2015 election remains his biggest obstacle. Opinion polls show the Tories losing support to the anti-EU U.K. Independence Party and trailing the Labour Party by around 10 percentage points in opinion polls.
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