Investors “rushing” on the possibilities of artificial intelligence are leaving the risk of a US default in the background. This is how Barclays summarizes the current market situation, with the index reaching its highest in the last six months thanks to the pullback of technology companies.
But the fall could be hard, according to UBS, if talks poll
Investors “rushing” on the possibilities of artificial intelligence are leaving the risk of a US default in the background. This is how Barclays summarizes the current market situation, with the index reaching its highest in the last six months thanks to the pullback of technology companies.
But the fall could be hard, according to UBS, if political talks to raise the public debt limit in the United States fail and the government runs out of funds to meet its commitments.
The Swiss bank’s analyst considers four possible outcomes of the tensions in Washington, with different consequences for all markets, from the stock market to bonds through the dollar and gold.
The first scenario implies that the US Congress reaches an agreement to raise the debt limit before the Treasury breaks it in June. The second hypothesis is that there is no settlement on time, but the government continues to service the debt while cutting back on other spending. In the third case, there is a slight delay in the payment of the coupons. And in the fourth, a month-long nonpayment of interest and principal of the loan until a political settlement is reached.
In the latter case, investor panic, uncertainty about the duration of the chaos and the impact on the economy, would cause stock markets in both the US and Europe to decline by more than 30%, calculates UBS. The S&P 500 would fall 3,000 points and the Eurostox 600 to 320 points. The cost of less solvent corporate bonds will rise by up to 850 basis points, but paradoxically, the yield on 10-year US public debt will fall to 2%, as it is seen as a safe haven (compared to short-term debt) suffer).. In the worst case the dollar will become equal to the euro, but will fall in other outcomes.
UBS sees chaos as unlikely, but notes that the Japanese yen and gold are the best hedges “for all levels of uncertainty and default”.
