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Debt limit bill passes US senate, raising markets
The Big Story π₯
The senate has voted along party lines yesterday to raise the borrowing limit well into December with Democrats striking a short-term agreement with Republican counterparts that halted a default.
The deal will see the borrowing limit raised to $480 billion an amount the Treasury said is needed to meet the United States' cash needs until the last month of the year. With this much extra cash, it is possible that the actual deadline will be pushed back later than December 3rd, December which is usually calm, will be nothing but the opposite this year.
The bill now is headed to the House, which is dominated by the Democrats, and would then be signed by President Biden. This short-term deal to push back the debt ceiling deal helped defuse escalating market tensions.
The spending divergences between moderate and progressive members within the Democratic party are somewhat thinning out with a reconciliation pact close to $2T increasingly possible.
It is unlikely that the debt ceiling will be breached, but with the news of a push back, there could be more price action as we come closer to the end of 2021.
Overnight Action π΄β
Stocks climbed today aided by a rising trend in Chinese shares and the debt ceiling deal in the US. Treasuries ended up in anticipation of a key US jobs report. Japanese shares did better and China moved ahead after reopening from its Golden Week holiday.
Stocks closed higher following the $480 billion debt-ceiling agreement. The S&P 500 rose given the agreement, which passed the Senate, making its way to the Democrat-led house. Markets rallied because missing an agreement would have jeopardized the US economy according the Janet Yellen.
Stocks traded well for a second session despite an ongoing rise in yields. Financials faded off their highs despite a rate tailwind and reopening-linked stocks were big laggards generally as investors booked gains.
We saw ten of the 11 S&P 500 sectors closing higher versus eight the day prior, but the market lost some momentum ahead of today's release of the September Employment Situation report and the S&P 500 saw resistance around the underside of its 50-day moving average.
Rising fuel costs could eat into profits for the transportation industry which translated into a dipping Dow Jones Transportation Average. WTI crude futures rose to $78/bbl following news that the Department of Energy, in the US, would not take from its oil reserves contrary to earlier reports.
There was growth on the latest weekly jobless claims figures showing improvement with claims falling by 38,000 units versus continuing claims falling further 97,000. Jobs are coming back.
Top 5 Moves ππ°
1. Cboe skew index falls with hedging demand slowing
It seems as though US investors may be ready to stop selling and start buying again as demand for protection falls on bets that the US stock sell-off is over. The Cboe skew index fell to its lowest level in 11 months this week. However, the Cboe index remains elevated from its long-run average indicating that investors are not blind to risk, they just see negative outcomes as low probability events--such the Evergrande default event. The recent sell-off event has enabled PMs to rebalance books.
2. Asia's junk bonds saw selling frenzy yesterday A rapid selloff saw the prices of many Chinese developer's bonds further intro distressed territory--are all of them really bad apples? Prices of US denominated bonds of Chinese property firms increased their gap on fears of more defaults and price declines. An ICE BofA index of high-yield dollar bonds from Chinese companies showed a yield of more than 19.8% Thursday, its highest in nearly a decade. In contrast, Southeast Asian yields offer value against US and EU junk bonds.
3. UK petrol stations panic with limited impact on majors Alongside rising and volatile gas spot prices, the lack of supply at UK service stations keeps making headlines. A gap in the number of drivers in the UK has fallen 22% from pre-COVID levels and lower fuel inventory levels i.e. 38% year over year, lower even than in June 2020, have resulted in the UKβs normally well-balanced fuel market moving into severe shortage thus putting refineries between a rock and hard place with nowhere to send their output. Of Europeβs majors, we have BP (15% UK market share) as quite exposed but only marginally impacted--the UK only accounts for 6% of BP's global service station network.
4. Twitter to sell MoPub for $1.05 billion
Twitter announced the sale of MoPub to AppLovin for $1.05B in an all cash deal. MoPub provides ad monetization solutions for mobile app publishers and developers, and Twitter bought MoPub in 2013 for $350M. MoPub contributed $188M in revenue to Twitter last year and helps 45,000 apps source advertising. AppLovin public disclosures suggest that MoPub could add $250M in revenue and around $220M in incremental cash flow, but this assumes cost synergies with their existing platform. It seems like MoPub margins were likely healthy, and it doesnβt seem like IDFA (identifier for advertsiers) headwinds was having a material negative impact on MoPub revenues.
5. Nations increasingly want lithium vertically integrated Governments worldwide are realizing the advances seen in the EV market and are looking to increase their output in the Lithium space, in such a way that would enable them more control over the now strategically categorized asset. European countries are climbing rankings and as a whole union actually surpass China in lithium battery supply chain rankings. Case by case however, China is first, with the US close second--the US is increasing its government efforts to set up policies to help establish a stronger domestic battery supply chain via tax breaks and other incentives.
Crypto Outlet π³
The US Department of Justice announced today that it will be launching a new cryptocurrency enforcement team to wage war of cybercrime and money laundering.
Q3 is seeing record sales for NFTs, which reached a total of $10.7 billion in sales, up from $1.3 billion in Q2.
A study conducted by crypto asset management company Iconic Funds showed that owning crypto positions had been shown to have a positive impact on the performance of diversified investment portfolios.
The country ETF with the highest returns since 2011 is by far the US's SPY, with a 324.6% cumulative return, which can be derived in a 14.4% annualized return. Most countries had a positive return, except for South Africa and Brazil.
Famed economist Nouriel Roubini is warning that the global economy could face stagflation. But what is stagflation, and how might one go about investing during it ?
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