2023 is proving to be a tumultuous year with many challenges for the financial markets.  At WRISE, we are dedicated to helping you navigate these challenges to not only safeguard but continue to grow your wealth.

Here is our assessment of the current situation and the macro factors fuelling the turmoil which are:

Interest Rates

A rocky year-long cycle of interest rate hikes has resulted in an increase in bond yields over the past year and a half. This has led to liquidity risk for small and mid-sized US banks, with many forced to close or sell due to falling bond prices.

Credit Suisse Bail Out

The acquisition of the century-old Credit Suisse rendered AT1 bonds worthless.

US Debt Ceiling

The US debt ceiling remains a contentious issue among political parties, with the potential to trigger the largest debt default in the nation’s history and inflict severe economic damage. Since its establishment in 1917, the debt ceiling has been raised 78 times and is currently set at US$31.4 trillion^.

On 28 May 2023, President Joe Biden and top congressional Republican Kevin McCarthy reached a provisional agreement to suspend the federal government’s borrowing limit*. Both leaders have expressed confidence that the proposal will receive congressional approval soon.

Nonetheless, past events have demonstrated that caution is warranted. In 2011, a bipartisan impasse over raising the debt ceiling resulted in a protracted federal government shutdown. The stock market initially showed little reaction, until Standard & Poor’s downgraded the US credit rating from AAA to AA+, triggering a cumulative stock market decline of 15%ˇ. Given the current macroeconomic environment, the ramifications of failing to address the debt ceiling issue could be far more severe if not handled correctly. It is imperative to exercise prudence and implement suitable risk management strategies.

WRISE is committed to providing the insight, guidance and support you need, to achieve your wealth goals. Please reach out to our client advisors for bespoke, unparalleled advice on growing your wealth and preserving your legacy.

Source:

^https://fortune.com/2023/05/12/brief-history-debt-ceiling-crises-default-joe-biden-kevin-mccarthy/
https://www.theguardian.com/business/2023/may/16/what-is-debt-ceiling-limit-explainer
ˇ https://www.npr.org/2023/03/23/1163448930/what-is-the-debt-ceiling-explanation

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