Broken Confidence | Weekly Excerpt May 15

Consumer confidence

According to a survey released Friday, U.S. consumer confidence is shattered. Consumer confidence hit a six-month low in May as concerns about the future of the economy increased due to the stalemate over raising the federal government's borrowing limit. Wall Street's major indexes failed to rise on Friday as broken U.S. consumer confidence prevented them from doing so. Proving that rapid interest rate hikes were beginning to hurt economic development. Consumer and producer prices also moderated a bit earlier in the week, while weekly jobless claims saw their largest increase in 1.5 years.  

Indexes surged at the opening bell on gains in Tesla Inc. on news that Tesla Inc. senior executive Elon Musk claimed to have identified a new CEO for Twitter. But they quickly undid their gains, falling 0.3% and further signaling the broken confidence present. There have been rumors that Linda Yaccarino, who left her post as head of advertising at NBCUniversal, is in talks to lead Twitter.

Banking Sector

Given broken consumer and investor confidence, smaller bank problems continued to have a market-wide impact, with PacWest Bancorp falling by 3% after disclosing that it had increased the amount of collateral it had pledged to the Fed for an additional $3.9 billion in emergency loans.

With many banks exposed to low-yielding assets at a time when higher interest rates are forcing them to offer more attractive rates of return, raising their funding costs and squeezing margins, the regional banking crisis is likely to worsen.

Policy

On the political front, there was some hope for progress in talks in Washington among lawmakers on legislation to raise the debt ceiling and avoid a default on U.S. debt payments. U.S. credit default swaps, an insurance against bad loans, on Treasury bonds have been rising in recent days, suggesting that concerns about a default are growing.