Earnings ease stagflation worries, Bitcoin close to record high, and Democrats move to break stalemate.
Earnings
The S&P 500 Index closed within
half a percent of an all-time high as solid corporate earnings helped
ease concerns over high inflation and a reduction in Federal Reserve accommodation. In corporate results today, Tesla Inc.’s report will be
closely watched for any of the chip problems plaguing other automakers, as well as updates on the company’s new factories
in Texas
and Germany. International Business Machines Corp., Verizon Communications Inc. and Abbott Laboratories are among the many other companies reporting.
Closing in
Bitcoin is trading around $64,000 this morning, near its all-time above $64,800. The latest rise in the cryptocurrency comes as the first exchange-traded fund listed in the U.S., debuting as the second-most heavily traded fund on record. The product’s popularity may be down to it allowing investors get exposure to the digital currency without having to go through the bother of going through crypto exchanges or setting up a digital wallet. Also getting in on the action are Grayscale Investments LLC who filed to change the world’s largest Bitcoin fund into an ETF and on a smaller scale, the Valkyrie Bitcoin Strategy ETF which plans to trade under the ticker BTFD.
Progress
President Joe Biden held meetings with both wings of the Democratic Party yesterday in an effort to make progress on his economic agenda. Due to the slim majorities in both houses of Congress, he will need almost all Democratic lawmakers on board with the plan. Some measures are set to be dropped from the original package, while others will run for much less time. Leaders are pushing for a framework
by the end of this week, which would clear the way for a vote in the House on the Senate-passed $550 billion infrastructure bill before the end of the month deadline.Markets quiet
Global equity markets are inching higher this morning as investors digest a raft of corporate earnings while keeping an eye on the macro landscape. Overnight the MSCI Asia Pacific Index added 0.3% while Japan’s Topix index closed less than 0.1% higher. In Europe the Stoxx 600 Index had gained 0.1% by 5:50 a.m. Eastern Time with miners falling as raw material prices eased. S&P 500 futures pointed to little change at the open, the 10-year Treasury yield was at 1.639%, oil was close to $82 a barrel and gold rose.
Coming up...
Canada September CPI is at 8:30 a.m. The latest U.S. crude oil inventories report is at 10:30 a.m. The U.S. sells $24 billion of 20-year bonds at 1:00 p.m. Regional Fed presidents Charles Evans, Raphael Bostic, James Bullard and Neel Kashkari speak at an event on racism and the economy. The Fed Beige Book is released at 2:00 p.m.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Joe’s interested in this morning
Since inflation is still top of everyone's minds these days, here's three things I've been thinking about.
1. Everyone has to pay attention to the price of coal in China these days. It's been soaring like crazy lately.
As Goldman's Jeff Currie explained on a recent Odd Lots, this has all kinds of knock-on ramifications.
It starts in China, coal in China, and then that creates tightness in gas that created the problems in Europe -- Europe substitutes into oil, creating the problem in oil. You've shut down the (aluminum) smelters, the zinc smelters, you know, so a lot of people say, you know, that the ground zero of those problems really was coal in China. So I do want to say the situation in China is very dire, but it's just one part of the world that can create a solution to it rather quickly and they're trying to with investments in Mongolia. But I want to be careful about restarting a lot of that shuttered coal. For those of us that are Americans and know what a superfund site is in the U.S., restarting these facilities is going to be a lot more difficult, a lot more expensive than I think what people think it will be. So you really got to focus on the new, more cleaner, sophisticated coal, in some of these mines in places like Mongolia. So bottom line, it's going to be tight over the next three to six months, but once you get that Mongolian coal up and running, the situation should ease, but no way does it solve it.
Read the whole transcript here.
2. Inflation isn't just the Fed's problem. The way we think about economic management in advanced economies like the U.S. is we delegate managing inflation to the central bank. But clearly it's not so simple. The White House has been working with big entities like the Port of Los Angeles, Union Pacific, Walmart, and FedEx to increase the throughput of the nation's logistical infrastructure. One element is to attempt to move to 24/7 operations at the port, where there's a long queue of ships waiting to unload their stuff, and a long traffic jam of trucks waiting to pick up containers.
Stephanie Kelton wrote about this for the New York Times in May, that the White House should be thinking more deeply about expanding supply capacity, with its infrastructure plans, and not just assume that monetary policy has all the tools available to address inflation. That perspective is already looking vindicated. The idea that inflation is this thing you control just by turning a rates dial, as opposed to looking deeply at what tools you have to expand capacity in problematic sectors, is being severely tested by this moment in time.
3. Business is booming and that's good for stocks. In the last two weeks, we've had a fairly significant rates tantrum at the short-end of the yield curve, as markets brace for faster and quicker rate hikes. And more and more people are saying that inflation isn't transitory (whether that's true is still TBD). Surprisingly though, risky assets have held up extremely well, with the S&P 500 just a smidgen off all-time highs set in August. It's not intuitive. Rate hikes, higher labor and commodity costs. You'd think they'd all be a drag here. But so far, earnings season looks good. Top lines and bottom lines seem to be doing fine, so that's what matters.
Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart
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