29 Sep

The United States faces the risk of sovereign debt default

September 29, 2021

by JustForex

The US consumer confidence index has shown a decline over the past month, confirming that US business activity is slowing as inflation remains at high levels. Consumers remain concerned about supply disruptions, the threat of higher inflation, and the Delta variant of coronavirus that will affect their lives and the economy.

The US stock market decreased sharply amid investor fears over the risk of a default on US sovereign debt. The Dow Jones Industrial Average decreased by 1.63%, the S&P 500 lost 2.04% and the Nasdaq Composite lost 2.83%. The Nasdaq showed the biggest fall since March 18, and the Dow Jones dropped for the first time in five trading sessions.

US Treasury Secretary Janet Yellen said that the Treasury would be out of money around October 18 if the debt limit was not increased. Fed Chairman Jerome Powell indicated that the Fed could not protect the American people from default if the debt limit was not increased. What’s going on? On September 30, the end of the fiscal year of the federal government is marked and this is the deadline for the adoption of funding measures by Congress. The debt ceiling, which represents the amount of money that legislators allow the Ministry of Finance to occupy, should be suspended or elevated by mid-October, otherwise, the United States will most likely declare a debt default. JPMorgan Chase CEO Jamie Dimon told Reuters that the nation’s largest bank is preparing for a possible US credit default as negotiations over the debt limit have stalled.

European stock indexes decreased yesterday following the US ones. The British FTSE 100 index decreased by 0.5%, German DAX lost 2.09%, French CAC 40 dropped by 2.17%, Italian FTSE MIB and Spanish IBEX 35 lost 2.14% and 2.59%, respectively. ECB head Christine Lagarde said the following: “To get out of the pandemic safely and get inflation back to 2%, we still need flexible monetary policy.” Great Britain’s authorities want to use the army to solve the issue of getting fuel to gas stations.

Oil decreased slightly yesterday. The pressure on prices is caused by renewed fears about the pace of global economic recovery amid the coronavirus pandemic. But analysts are confident that oil prices will continue to rise, as production in the Gulf of Mexico is still not restored to pre-Hurricane Ida levels, while crude oil inventories are at their lowest in three years.

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Asia-Pacific stock markets have declined on Wednesday following a negative US trading session. Investors are concerned about the expected slowdown in China’s economy, which is facing an energy crisis. China’s energy crisis is connected with the fact that some Chinese regions face a real power shortage amid a sharp spike in coal and natural gas prices and other regions are demanding companies to save energy to meet the goals set by the national authorities to cut harmful emissions. Chinese industrial profits grew at a weaker pace in August than a year earlier, slowing down the sixth month in a row as manufacturers faced high raw material prices, COVID-19 outbreaks, and shortages of some key components.

Goldman Sachs worsened its forecasts for China’s economic growth in 2021 against the background of restrictions in power consumption and problems with the Evergrande developer. Now bank experts expect China’s GDP growth of 7.8% compared with a year earlier, while the previous forecast provided for the growth of 8.2%. International rating agency S&P Global Ratings improved its forecast for economic growth in Japan and Australia in the next two years and lowered the forecast for GDP growth in China.

On the other hand, BlackRock hedge-fund analysts told their investors that Chinese stocks are priced according to their risks and investors should consider buying them while they remain cheap.

The persistent worldwide shortage of semiconductor components will begin to ease in early 2022.

Main market quotes:

S&P 500 (F) 4,352.63 −90.48 (−2.04%)

Dow Jones 34,299.99 −569.38 (−1.63%)

DAX 15,248.56 −325.32 (−2.09%)

FTSE 100 7,028.10 −35.30 (−0.50%)

USD Index 93.71 +0.33 (+0.35%)

Important events for today:
  • – German Retail Sales (m/m) at 09:00 (GMT+3);
  • – US Pending Home Sales (m/m) at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – UK BoE Gov Andrew Bailey’s Speech at 18:45 (GMT+3);
  • – US FOMC Chair Jerome Powell’s Speech at 18:45 (GMT+3);
  • – Japan BoJ Gov Haruhiko Kuroda’s Speech at 18:45 (GMT+3);
  • – Eurozone ECB President Lagarde’s Speech at 18:45 (GMT+3).

by JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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