During a Senate hearing Tuesday, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a U.S. default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the debt limit for the second time in as many days -- escalating tensions less than three weeks before the U.S. Treasury potentially runs out of capacity to avert a federal payments default.
"We would expect a deal to get done, but it appears as though both sides are a bit more entrenched compared to previous periods," said Brian Price, head of investment management at Commonwealth Financial Network. "A government shutdown is a risk factor that we'll be watching in the coming days and weeks."
Yellen warned that her department will effectively run out of cash around Oct. 18 unless legislative action is taken to suspend or increase the debt limit. Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he's a "dangerous man to head up the Fed" and that's why she'll oppose his renomination.
The S&P 500 extended its September selloff, with technology shares underperforming economically sensitive companies. The Nasdaq 100 dropped the most since March. The yield on Treasury 30-year bonds climbed more than 10 basis points earlier Tuesday. The dollar rallied.
The world economy is facing a buildup in stagflationary forces as surging energy prices boost inflation and slow the recovery from the pandemic recession. Brent oil hovered near the key, psychological level of $80 a barrel, while natural gas surged.
U.S. consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continue to dampen sentiment. Home prices surged 19.7% in July -- once again posting the biggest jump in more than 30 years.
Here are some events to watch this week:
- Japan's ruling party votes to elect leader, Wednesday
- Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
- House Financial Services Committee hearing on the Fed, Treasury's pandemic response, Thursday
- China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
- Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday
Some of the main moves in markets:
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- The S&P 500 fell 2% as of 4 p.m. New York time
- The Nasdaq 100 fell 2.9%
- The Dow Jones industrial average fell 1.6%
- The MSCI World index fell 1.8%
- The Russell 2000 Index fell 2.2%
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- The Bloomberg Dollar Spot index rose 0.5%
- The euro was little changed at $1.1687
- The British pound fell 1.1% to $1.3542
- The Japanese yen fell 0.4% to 111.46 per dollar
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- The yield on 10-year Treasuries advanced six basis points to 1.54%
- Germany's 10-year yield advanced two basis points to -0.20%
- Britain's 10-year yield advanced four basis points to 0.99%
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- West Texas Intermediate crude fell 0.8% to $74.82 a barrel
- Gold futures fell 1.1% to $1,733 an ounce
Published : September 29, 2021