A Very Temporary Solution in the U.S. Debt Ceiling Debate

October 7, 2021

Progress has been made on averting a U.S. debt default that would otherwise have occurred in the middle of this month, but the reprieve only buys about two extra months. Even so, two months are better than nothing, so equity markets rallied overnight. And the dollar and price of oil moved lower.

  • The dollar fell 0.5% against the Australian dollar, 0.4% versus the kiwi and Mexican peso, 0.2% vis-a-vis sterling, and 0.1% relative to the loonie, euro, and Swiss franc. The weighted DXY index slipped 0.2% overnight after reaching a near 52-week high yesterday, and the dollar is 0.1% firmer against the yen.
  • The price of WTI oil has dropped 1.6%, and that of gold firmed 0.2%.
  • Today is the last day of China’s National holiday. In open markets around the Pacific Rim, share prices closed up 3.1% in Hong Kong, 2.0% in Taiwan, 1.8% in South Korea, and 0.5% in Japan. Major European stock market indices so far have risen 1.4% in Germany, Italy and Switzerland, 1.6% in France and 1.2% in Great Britain, and U.S. stock futures show a rise of around 1%.

On the data release front today, the biggest disappointment involved another weaker-than-assumed German industrial production report. Output slumped 4.0% in August, the fourth monthly drop in five months. This trimmed the 12-month rate of increase to a 6-month low of 1.7% and left such 9% below the pre-pandemic level.

Other industrial production releases today were mixed, with monthly rises in August of 5.0% in Denmark (largest since March) and 2.7% in Norway but a drop of 3.2% in the Czech Republic, which is the greatest drop since April 2020. Compared to August 2020, industrial production rose 15.5% in Denmark and 2.7% in Norway but fell 1.4% in the Czech Republic.

Among price data out today,

  • Mexican CPI inflation accelerated 0.4 percentage points to a 5-month high in September of 6.0% and was almost twice the end-2020 pace of 3.15%.
  • Dutch CPI inflation climbed from 1.4% in July through 2.4% in August to a 21-month high of 2.7% last month.
  • Cypriot consumer prices dipped 0.1% in September, and the 12-month rate of increase settled back to 4.1% from 5.0% in the previous month.
  • Wholesale price inflation in Austria, which had been negative 0.1% back in January, jumped 1.5 percentage points further to a record high of 13.5% in September.
  • The Halifax index of British home prices leaped 1.7% in September, their largest monthly advance in 14 months, and was 7.4% above the year-earlier level.
  • Housing prices in the euro area rose 2.6% on quarter and 6.8% on year during 2Q 2021.

The Japanese indices of leading and coincident economic indicators both fell to six-month lows in August. Japanese and Chinese international reserves respectively dropped in September by $15 billion and $31 billion to $1.409 trillion and $3.201 trillion.

Italian retail sales were 1.9% greater in August than a year earlier. While that was the sixth straight year-on-year advance, it was the smallest rise in that sequence.

France experienced its second smallest current account deficit in eight months during August. The gap narrowed to EUR 1.28 billion from EUR 3.39 billion in July.

Consumer confidence in Thailand revived from a record low in August of 39.6 to 41.4 in September but remained well below last November’s 9-month high reading of 52.4.

Policymakers at the National Bank of Serbia, unlike several other central banks earlier this month, did not raise their key interest rate at the latest review. Following four reductions totaling 125 basis points between March and December last year, such will remain at a record low of 1.0%. However, an initial snugging of monetary policy was announced in the post-meeting statement.

Just in: U.S. new jobless insurance claims last week contracted more sharply than predicted to a 4-week low of 326k from 364k in the prior week. This piece of good labor market news and the delayed debt ceiling doomsday moment are, all things considered, apt to alleviate any qualms among FOMC officials against announcing a tapering of bond purchases when the group meets next month.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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