Biden: The US always pays its debt

Comments from the President

Comments from the President
  •  Raising the debt limit is about paying off old debts, not about new spending
  • Republicans are being reckless and dangerous on the debt ceiling
  • We have to raise the debt ceiling in part due to reckless policies under the Trump administration
  • Says he’s asking Republicans not to use procedural tricks not to raise the debt ceiling
  • Tells Republicans to get out of the way
“If you don’t want to help save the country, get out of the way so you don’t destroy it,” he says. “They need to stop playing Russian roulette with the American economy.”
This charade is going to go on for a little while longer. Pray that it causes a real panic in markets because that would be an incredible dip to buy. The US isn’t going to default.

Australian dollar hits a session high as the New York week gets underway. RBA later

How does that coal look now?

China’s decision to boycott Australian coal isn’t looking too wise at the moment as prices jump to skyhigh levels and China is threatened with power outages.
The RBA meeting is at 2330 GMT today and it will be a tricky on as the pandemic begins to clear out the Australian political scene. Thankfully vaccination progress is continuing but there’s a huge reserve of people in the country who haven’t been infected, meaning the early success there could mean a long-term drag.
The mood in equity markets is stable markets with S&P 500 futures down 18 points. But FX is often a leading indicator and the dollar is under some pressure, despite 10-year yields rising 2 bps.
On equities, I would note that 62% of stocks in the S&P 500 are down 10% from their 52-week highs and 16% are down 20%. The internals aren’t quite as solid as the index.
AUD/USD is up 32 pips and is having a look above Friday’s highs. That’s the best level since Sept 27.
How does that coal look now?

Equities on the backfoot again ahead of the European cash market open

A rocky start to the week for the risk mood

US futures are dragged lower once again, with S&P 500 futures now down 0.4%, Nasdaq futures down 0.6%, and Dow futures down 0.3% on the day.
It’s a bit of a messy and wishy-washy start to the week as the market continues to grapple with key issues weighing on sentiment in general. Some things to consider:
  1. Evergrande anxiety resurfaces as debt test looms and asset sales reported
  2. US debt ceiling remains unresolved but lawmakers are sanguine
  3. Supply bottlenecks continuing to pose a threat (key semiconductor firms to raise prices in Q4, h/t @ AvidCommentator)
  4. The energy crisis is still playing out ahead of winter
  5. Rising (and persistent) inflation a major headache for the recovery, central banks


Looking at FX, the dollar is sitting mixed and a touch lower but changes are rather minimal for the most part so we’ll see how things play out once the ranges start to extend.

Fumio Kishida formally announced as Japan’s new prime minister

Kishida succeeds Suga after winning the ruling party election last week


The announcement here is but a formality after his victory last week here. From last week:

Among his promises is more spending but to also steer away from neoliberalism in order to provide more support to the middle/working class. But if anything else, the once dubbed Abe heir apparent is not likely to bring about drastic change to the Japanese political and economic landscape.

Is Evergrande considered too big to fail?

In summary …
Is Evergrande considered too big to fail? 
  • Comparisons have been made with the collapse of US investment bank Lehman Brothers in 2008, which triggered the Global Financial Crisis. A major point of difference, however, is that Evergrande holds a large land bank as its major asset, estimated to be worth around US$220 billion (source: Bloomberg)
  • The Chinese government has a lever that few Western governments have – it effectively owns the domestic banks, and non-state financial companies are largely controlled. And it also has control over the real estate industry where Evergrande operates. In fact, China’s housing regulator has already stepped in to protect funds earmarked for housing projects from being diverted to creditors. 
  • During China’s initial Covid-19 outbreak in 2020, the financial sector “sacrificed” around US$210 billion in profits (source: Bloomberg) to support the economy. Of course, this can be done again, if necessary. 
  • While still a significant systemic risk, most China-observing real estate analysts and economists don’t expect Evergrande to go bust. A restructuring could still occur where some banks roll over financing. Other creditors may also receive assets, such as property and land instead of cash. And bondholders could get some of their investment back.
So, a longer, drawn-out slump rather than the another GFC? Whether that is good or bad is a judgement I am sure you can make for yourselves individually.
An Australian securites brokerage firm CommSec asks the question on the deeply troubled China property developer. 

OPEC and its allies meet on Monday. 400K bbl/day to be added to output, but could be more.

OPEC+ is The Organization of the Petroleum Exporting Countries and its allies (led by Russia)

Meetings today:
  • JMMC is scheduled to start at 1400 Vienna time (1200 GMT)
  • The Ministerial meeting then follows at 1500 (1300 GMT)
JMMC is the Joint Ministerial Monitoring Committee. JMMC tracks the compliance of Opec+ members with their production quotas.
Back in July the group agreed to boost output by 400,000 barrels per day every month until at least April 2022. This is a gradual phase-out of cuts agreed to in 2020.
Reuters reported last week that four OPEC+ sources told them producers were considering adding more than that 400K. There were no details given on how much extra, or when supply would increase. It’d be November at the earliest most likely given the cuts in October were confirmed at the previous OPEC+ meeting.
OPEC+ is The Organization of the Petroleum Exporting Countries and its allies (led by Russia)
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