By Michael Every of Rabobank
Tuesday was ugly in markets. US equities tumbled around 2% to a two-month low and through key moving averages, with even the biggest names falling. US Treasury yields also continued to rise, with 2s little changed, 5s up 3bp, and 10s up 6bp, marking further curve steepening. The US dollar got another lift as gold and crypto saw another dip. Reflation? Stagflation? Devastation?
In Europe, gas prices went vertical (up 12%), then fell, and ended slightly higher. This underlines the precariousness of the global energy complex, with all the knock-ons that entails. The only “reassurance” came from the Kremlin, which stated that despite a further drop in gas shipments to the EU, this was temporary, and Russia “would never use gas as a weapon. Really. Honest. Pinky swear. Now when does Nord Stream 2 get signed off on by Europe?”
In keeping with Bond themes, and it was also finally time for ‘No Time To Die’, other bangs were heard in DC. Treasury Secretary Yellen emphasized the cash runs out on 18 October, the US government will shut down, and could default on its debts, which would be “catastrophic”. Of course, that can be avoided if the Democrats raise the debt ceiling, which they have the votes to do, even over a Republican filibuster, by using ‘reconciliation’. However, they don’t want to: it takes weeks of painful committees at best. The debt ceiling could be linked to other bills – but the Democrats don’t have the votes for them. Progressives oppose the bipartisan $1.2trn infrastructure bill alone, including AOC. (Who, without being partisan, just someone who enjoys play on words, I just heard...