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LGT Navigator: Government shutdown in the US averted, at least for now

October 1, 2021

The US Congress in Washington has averted a threatened partial shutdown of government business at the last minute. However, this has not yet solved the problem of a threatened US default. On Wall Street, prices dropped, and the Dow posted a monthly loss of more than -4%. In Japan, the Bank of Japan's Tankan report showed a positive outlook of big manufacturers.

Government shutdown in the US averted, at least for now

In Washington, the Democrats and Republicans were able to prevent a threatened partial shutdown yesterday shortly before the deadline. However, the US is still threatened with default if it fails in raising or suspending the debt ceiling.  US Treasury Secretary Janet Yellen warned that this would damage confidence creditworthiness of the United States and could threaten a financial crisis and recession. Regarding the multi-billion infrastructure program proposed by US President Joe Biden, it has still not been possible to reach agreement.

Although it was possible to avert a partial shutdown of government business shortly before the deadline, investors remain skeptical as to whether the two feuding parties in Washington will succeed in solving the problem of the debt ceiling. Against this background, the standard stocks closed yesterday significantly in the red, while the losses in tech stocks were limited. The Dow Jones Industrial closed -1.59% lower at 33'843.92 points and the S&P 500 fell -1.19% to 4'307.54 points. On the Nasdaq, however, the indices lost just under half a percent. Today, several economic indicators, first and foremost the purchasing managers surveys, are now in focus.

Japan Inc. more optimistic about the future

The quarterly business survey of the Japanese central bank, the so-called Tankan report, showed a more confident mood in Japanese industry. The corresponding indicator rose from 14 to 18 points to its highest level in almost three years. However, the survey also showed that bottlenecks in components such as computer chips are hampering the recovery. So as a result, many manufacturers have reduced their inventories and in some cases even stopped production. But there are also companies that are investing in factory equipment, it said. For example, the survey found that large manufacturers expect capital spending to increase by +10% – the highest level since 2018. 

US economic growth revised slightly upward in Q2

The world's largest economy grew slightly faster in the second quarter than previous estimates. Economic output increased from the previous quarter at an annualized rate of +6.7%. The previous calculation had assumed +6.6%.

Inflationary pressure in core eurozone countries continues to increase

In Germany, the annual rate of consumer price inflation climbed above four percent in September for the first time in almost 28 years! Over the year, the cost of living increased by +4.1%, driven mainly by higher energy prices (+14% year-on-year) and the CO2 tax due since January. In addition, the withdrawal of the temporary VAT cut is putting pressure on prices. Inflationary pressure is also increasing in France. Compared with a year earlier, consumer prices increased by +2.7% - the highest rate since 2011. In August, the inflation rate was still +2.4%. In Italy, the inflation rate rose to +3.0% in September from 2.5% in August, thus reaching the highest level since 2012.

Recovery momentum of the Swiss economy continues to weaken

According to the latest edition of the KOF business cycle barometer, economic development cooled for the fourth time in a row in September. The indicator fell by 2.9 points to 110.6, but at least remains above the long-term average. Weaker demand from abroad had a particularly negative impact.

British economy grows somewhat more strongly than expected in Q2

Economic output in the UK recovered more strongly from the corona pandemic in the second quarter than previously expected. Gross domestic product increased by +5.5% compared with the previous quarter. An initial estimate by the Office for National Statistics (ONS) had still assumed +4.8%. Household spending grew most strongly thanks to the lifting of many restrictions.

 

Economic Indicators October 1

MEZ Country Indicator Last period
08:00 GE Retail Sales (August, m/m) -5.1%
09:15 SP IHS Markit PMI Manufacturing (September) 59.5
09:30 SZ PMI Manufacturing (September) 67.7
09:45 IT IHS Markit PMI Manufacturing (September) 60.9
09:50 FR IHS Markit PMI Manufacturing (September) 55.2
09:55 GE IHS Markit PMI Manufacturing (September) 58.5
10:00 EZ IHS Markit PMI Manufacturing (September) 58.7
10:30 UK IHS Markit PMI Manufacturing (September) 56.3
11:00 EZ Consumer Prices (September, y/y) +3.0%
11:00 EZ Core Consumer Prices (September) +1.6%
14:30 US Consumer Spending (August, m/m) +0.3%
14:30 US Core PCE Inflationsindex (August, y/y) +3.6%
15:45 US IHS Markit PMI Manufacturing (September) 60.5
16:00 US ISM PMI Manufacturing (September) 59.5
16:00 US Consumer Sentiment University Michigan (September) 71.0

 

Earnings Calender October 4

Country Company Period
SP Repsol Q3 Sales

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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