Axios Markets

After weeks of warnings about looming financial doom, markets still don't seem worried about a default, Matt writes.

Why it matters: It means those most directly exposed to the supposedly drastic downside of an unresolved debt ceiling fight are taking the dire predictions — or the risk of defaulting itself — with a heaping helping of salt.

The latest: Treasury Secretary Janet Yellen warned yesterday of the potential for "substantial financial market distress" as negotiations drag on.

• And yesterday evening, Fitch Ratings warned that the country's AAA rating could be downgraded, citing the rising risk "that the government could begin to miss payments on some of its obligations."

Context: For weeks, passing references to the conflagrations that would follow a debt ceiling debacle have been a prominent news leitmotif.

• One example: "The United States could default on its obligations for the first time in history, potentially tipping the nation into recession and plunging global financial markets into chaos," the Washington Post reported (emphasis ours).

Yes, but: The financial scoreboards aren't registering much in the way of chaos and catastrophe. At least not yet.

• Stocks are sitting on gains of 7% for the year.
• The stock market's "fear gauge," the VIX, is hovering around 20, well below levels that have telegraphed serious market jitters.
• True, investors are avoiding the Treasury bills set to mature around the June 1 deadline (see below) — but there's no sign of a buyers strike aimed at Uncle Sam's bonds.

What they're saying: "In the unlikely event of a technical default, we think front-end yields would decline materially, as markets incorporate expectations of more aggressive Fed easing," JPMorgan bond market analysts recently wrote.

• Translation? JPM thinks investors will respond to a default on U.S. Treasury bills by, uh, buying more U.S. Treasury bills.
• It's notable that some of the best-informed analysts on Wall Street think this "flight to safety" dynamic — when buyers rush to buy Treasuries in the face of a shock — will endure, even when the source of the shock is actually Treasuries themselves.

Flashback: That's not to say that if we get to default — or even start to seriously look like we will — the markets will completely ignore it.

• In the summer of 2011, the last time Congress played serious debt-ceiling footsie, the stock market felt it. The S&P 500 dropped 19%.

A wild card: The prospect of an actual missed payment on Treasury bills could be an issue for the often invisible "plumbing" of the financial markets, where Treasury bills are used as a key source of collateral. (To get into the weeds on this, read Matt Levine over at Bloomberg.)

• And a downgrade of the U.S. government's credit rating could play out in hard-to-predict ways, potentially forcing some to dump Treasuries.

The bottom line: For now, the markets are shrugging off the idea of a default. But there's no guarantee they'll continue to.

• In fact, one way to read to current markets is that investors simply don't think elected leaders are going to seriously contemplate the D-word.
• If that changes, markets can always fall to pieces — fast.

The markets might not buy that an imminent U.S. government default will lead to guaranteed financial and economic catastrophe, but investors are clearly avoiding certain Treasury debt set to be repaid amid the D.C. hijinks, Matt writes.

The latest: Check out the Treasury bill set to mature on June 1, when the Treasury Department is warning the U.S. might not be able to meet all its obligations.

• Investors are shunning it, sending its price down and yield sharply higher.
• By contrast, the virtually indistinguishable Treasury bill set to mature a couple of days earlier is trading at a premium, pushing its yield sharply lower.

The bottom line: This isn't a sign of panic, it's a sign that the market is sensibly avoiding the Treasury paper most likely to cause them some kind of headache.

⚠️ Chinese hackers hit critical U.S. infrastructure, intelligence agencies say. (Axios)

🇪🇺 OpenAI warns over split with Europe as regulation advances. (FT)

🏠 Airbnb cracks down on parties in rentals ahead of Memorial Day. (Airbnb blog)

Nvidia's stock soared more than 20% after the chipmaker late yesterday reported much better than expected quarterly results — and upped its forecast for the year, citing "surging demand," Matt writes.

Why it matters: Nvidia is one of the semiconductor companies considered to be at the center of the hype around artificial intelligence, which has supercharged its shares this year.

Context: It's a rare bit of 2021-vintage euphoria for a market still licking its wounds from an awful 2022.

Zoom in: Even before the latest earnings report it was the best-performing stock in the S&P 500, with a gain of 109% in 2023.

• Including yesterday's after-hours action, it's up about 160%.
• This year's run has catapulted the company into the top five of the S&P 500 — it's now the fifth largest company in the index, by market cap.
• Nvidia's market value is now somewhere over $930 billion, leaving market giants like Berkshire Hathaway ($700 billion), Meta ($639 billion) and Tesla ($580 billion) covered in dust.

Copper prices have fallen below $8,000 per ton for the first time since November, Axios’ Kate Marino writes.

Why it matters: The metal soared last fall on hopes that China’s reopening would provide a jolt to the global economy.

• The reversal is another signal that the world's second-largest economy — and its largest growth engine — isn’t roaring back as fast as investors had hoped.

What they're saying: "China may be slowly emerging from hibernation post its Zero Covid policy, but its economic data — especially for sectors critical for commodities demand — remains patchy," wrote BofA Global Research analysts in a note on Monday.

• "All in, the rebound is not yet strong enough for a sustained copper price rally (and the weakness in Europe and the US does not help either)."

Context: The metal, used in all kinds of infrastructure, is a proxy for the health of global industry — hence its informal moniker “Dr. Copper.”

• Of note: China recently unveiled a smaller-than-expected growth target for 2023, which Goldman Sachs analysts dubbed "unambitious."