Daily Markets: Approaching the US Debt Ceiling
The big picture of today
Stocks in Asia-Pacific were mixed today, with Japan’s Nikkei closing the day almost flat, China’s Shanghai Composite was down 0.8%, Hong Kong’s Hang Seng was up less than 0, 1%, South Korea’s Kospi added 0.3% and Australia’s ASX 200 rose 0.6%. At midday, major European stock indices mostly in the green and US equity futures show a mixed opening.
With meager corporate earnings this week and minimal economic data, the main focus for the week will be what’s happening in Washington and the looming debt ceiling deadline. If there is no resolution to the debt ceiling showdown, we face a possible government shutdown on Friday October 1. It looks like we’ll be watching a Washington Chicken Party again this week – fingers crossed we nearly missed one again, but that more than likely means a debt ceiling kick can down the road rather than to solve the problem once and for all.
Hospitals in parts of the United States have passed breaking point due to the large number of Covid-19 patients requiring treatment and have been forced to ration care. Alaska last week joined Idaho in adopting statewide crisis care standards that guide healthcare providers when making decisions about allocating scarce resources. Several hospitals in Montana have been forced to do the same. The guidelines allow providers to divide care according to the patient’s chances of recovery, which has an impact all patients, not just those with Covid-19.
As of Friday, intensive care units in Alabama, Georgia, Idaho, Kentucky and Texas all had more than 90% capacity. Alaska, which has its highest Covid-19 infection rate since the start of the pandemic, is 84% and Montana 77%.
A study of death registers in 29 countries, including most of Europe, the United States and Chile, found that 27 countries saw life expectancy in 2020 drop to a degree not seen since the Second World War. In the United States, men experienced the largest decline in life expectancy, dropping 2.2 years from 2019, followed by Lithuanian men, with a decline of 1.7 years. The decline in life expectancy in the United States for both men and women, which saw a drop of 1.65 years, in 2020 is completely unprecedented in data going back to 1933.
The big international news over the weekend came from yesterday’s German elections in which it looks like Olaf Scholz and the Social Democrats are ahead of Chancellor Angela Merkel’s conservative party in a highly unusual close election that will decide to the future direction of Europe’s largest economy. So far, the Social Democrats appear to have 25.7% versus 24.1% for the Christian Democrats in a tentative first tally and while both claim to have a mandate to govern, the Christian Democrats have said that they would try to form a coalition.
For those who don’t know, multi-party systems like Germany’s and Italy’s require a majority to rule. How this works in practice is really fascinating as it can mean that a small party of, say, 5% of the popular vote becomes the most powerful party. How is it possible? Without a sufficient majority, parties must form coalitions. Sometimes, depending on how the percentages of the vote are distributed, a party that has 5% can become the swing party, meaning that the coalition they decide to go with will be the ruling coalition. This gives them a lot of power in that they can always threaten to leave the coalition and go to the other side. Why do you care? Because Germany has the strongest economy in Europe, which gives it a good influence on the region, which is important given that the European Union has the second largest economy in the world. The good news is that until everything is sorted out, Angela Merkel will remain the country’s acting chancellor until the new administration is ready to take over.
Things in the UK are becoming increasingly tense due to gasoline shortages, which has led Prime Minister Boris Johnson to consider using military personnel to ferry tankers across the country after panic buying left some service stations empty. PA PCL (PA) said it was running out of main grades at nearly a third of its stations due to intense demand and a shortage of truck drivers. Reuters reports that up to 90% of UK gas stations have run dry in major English towns today due to panic buying.
But wait, there is more! China’s electricity shortages in at least 10 provinces are hampering the country’s economy as factories vital to global supply chains have been forced to cut production. The factories were ordered to use less electricity and some even had to close for a few days. The country struggles to meet central government carbon emissions targets, sparking an electricity crisis that could reduce GDP by 0.1 to 0.15 percentage points in the third and fourth quarters, according to the bank China Renaissance investment.
For Japan, the leading economic index and the coincident index were slightly lower in July than in August, falling from 104.2 to 104.2 and from 94.6 to 94.4, respectively.
More signs of price pressure with Spain’s PPI for August, which fell from 15.6% yoy in July to 18.0% yoy.
Pfizer (PFE) is expected to submit data on the effects of its Covid-19 vaccine on people aged five to eleven to the U.S. FDA this week.
U.S. House of Representatives Speaker Nancy Pelosi has postponed voting on the bipartisan $ 1,000 billion infrastructure bill until Thursday, September 30, but remains confident the bill will pass. The House is expected to begin debating the bill today.
If there is no resolution to the debt ceiling showdown in Washington, we face a possible government shutdown on Friday, October 1. Tonight, the US Senate will vote on a debt ceiling suspension and resolution finance bill, which is expected to fail. According to the Bipartisan Policy Center, without suspension or raising of the ceiling, the government will be at risk of default between October 15 and November 4.
Later today, we’ll have durable goods orders, the Dallas Fed’s manufacturing index, and hear speeches from some Federal Reserve officials.
The S&P 500 and Dow Jones Industrial Average closed 0.2% and 0.1%, respectively, higher on Friday, while the Nasdaq Composite closed slightly lower and the Russell 2000 lost 0.5%. The 10-year rate rallied five basis points to 1.46%. From a sector perspective, financial, energy and communications services dominated the day while real estate, healthcare, materials and utilities ended the day lower.
After being in a range since mid-July, 10-year Treasury yields broke through the high end of that range, which was 1.4%, to end the week at 1.45%. That’s significantly above the 2021 low of 1.13% in August, but still below the 1.77% high in March. So far, the Bank of England has signaled it could hike rates as early as November, and Norway is implementing the first post-pandemic hike in the Group of 10 countries.
Actions to watch
Profit announcements and advice
Before the stock market opens this morning, Jefferies (JEF) will be among the few companies to publish their quarterly results.
Tesla (TSLA) The Shanghai plant is expected to produce 300,000 cars in the first nine months of the year, capped by a rush towards the end of the September quarter.
Due to the rapidly escalating cost of European energy, as of October 4, Sonoco-Alcore Sarl (SON) will increase prices by € 50 (£ 50) / tonne on all grades of recycled cardboard sold in its EMEA regions.
Reports suggest Amazon (AMZN) may start charging a $ 9.95 delivery fee for Whole Foods in the US
Earlier today, Alphabet (GOOGL) launched his call to overturn a $ 5 billion antitrust fine imposed by the European Union. The company’s position is that its Android operating system for mobile devices has stimulated competition rather than barred it.
iFIT Health & Fitness launched an IPO of 30.8 million shares with a target price range of $ 18 to $ 21 per share.
After today’s market closes
No company should publish its quarterly results. With only a few days to go until the end of the quarter, we’ll be on the lookout for pre-announcements of the September quarterly results, good and bad. Those looking to get an overview of the revenue reports in the coming days should visit Nasdaq earnings calendar page.
On the horizon
- September 28: Goods Trade Balance, Wholesale Inventories, S & P / Case-Shiller Home Price Index, Conference Board Consumer Confidence
- September 29: Home sales pending
- September 30: Q2 GDP (final estimate), weekly jobless claims, Chicago PMI
- October 1: Personal income and expenditure, PCE price index, Markit and ISM manufacturing PMI, Michigan consumer sentiment, construction spending
- October 4: Factory orders
- October 5: Total vehicle sales for September, trade balance, ISM market and services PMI, IBD / TIPP economic optimism
- October 6: Job change at ADP
- October 7: Unemployment claims
- October 8: Non-agricultural payroll, Wholesale inventories
- October 12: JOLTs report
- October 13: IPC, FOMC report
- October 14: Weekly unemployment registrations, PPI, Monthly budget statement
- October 15: Retail sales, import and export prices, NY Empire State Manufacturing, Michigan Consumer Sentiment (preliminary), company inventories
Thought of the day
“And all of a sudden, summer collapsed into fall.” ~ Oscar Wilde
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.