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LGT Navigator: Dispute over US debt ceiling and rising oil prices cause unrest

October 6, 2021

A potential default by the US government and the recent rise in oil prices, which is once again pushing up inflation expectations and could thus force central banks to act more quickly, are weighing on sentiment on financial markets. While indices on Wall Street rallied yesterday, most stock exchanges in Asia posted losses.

Dispute over US debt ceiling and rising oil prices cause unrest

In Asia, the stock indices on Wednesday initially followed the positive guidance from the US, but then could not hold their initial gains and tended to close mostly in negative territory. In addition to the dispute over the increase in the debt ceiling in the US, in particular the rise in oil prices amid problems regarding energy supply is causing concern. After OPEC+ stuck to its planned production increase instead of raising it further, US WTI oil rose to its highest level since 2014 at just under USD 80 on Wednesday, while Brent crude oil traded at around USD 82.50 a barrel after hitting a three-year high the previous day.

On the New York Stock Exchange, the Dow Jones Industrial gained +0.92% to 34'314.67 points supported by a strong reading of the ISM services purchasing managers survey and the S&P 500 gained +1.05% to end Tuesday's trading at 4'345.72 points. Daily gains of nearly +1.5% were observed on the Nasdaq.

US default would have catastrophic consequences

US Treasury Secretary Janet Yellen warned of a US default should Congress fail to raise or suspend the debt ceiling in time. This could have “catastrophic consequences,” damaging confidence in the creditworthiness of the world's largest economy and leading to a recession in the United States. In an interview with CNBC television, the former Fed chief said the dispute in the House was irresponsible and jeopardized the US economy's recovery from the corona crisis.

US trade deficit rises to record high

The balance of exports and imports in the United States reached a new record high of USD 73.25 billion in August, up from USD 70.3 billion the previous month. While American exports increased by only +0.5%, imports rose by +1.4% to a record high of USD 287 billion.

Leading indicators signal further weakening of euro economy

The Purchasing Managers' Indices (PMIs) published by the London-based institute IHS Markit confirm a slowdown in economic momentum in the eurozone. For example, the PMI for the private sector (service providers and industry) in the eurozone fell to 56.2 in September from 59.0 points in the previous month. According to IHS Markit, the background to this is global supply problems, a resulting increase in price pressure as demand weakens, commented IHS Markit Chief Economist Chris Williamson.

Producer prices in the eurozone continue to rise

Euro-area industrial producer prices rose a strong +13.4% on the year in August. Compared with the previous month, the price increase was +1.1%. Producer prices partly flow into consumer prices as companies pass on costs to their products.

ECB should not overreact on supply problems and energy prices

According to President Christine Lagarde, the European Central Bank (ECB) should consider second-round effects in inflation developments but should not overreact. The central bank should not overreact to supply bottlenecks or rising energy prices, as monetary policy cannot directly influence these phenomena, Lagarde said.

 

Economic Indicators October 6

MEZ Country Indicator Last period
08:00 GE Factory Orders (August, m/m) +3.4%
11:00 EZ Retail Sales (August, y/y) +3.1%
14:15 US ADP Employment Private Sector (September) 374,000

 

Earnings Calender October 6

Country Company Period
FR Saint-Gobain Investor Day
UK Tesco H1

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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