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Short-Term Debt-Limit Extension on the Table; U.K. Inflation Worries

Good day. A proposal from Senate Republicans would extend the U.S. debt ceiling into December, provided that Democrats affix a dollar amount to the debt level. Treasury Secretary Janet Yellen has warned her department is likely to exhaust its cash-conservation measures by Oct. 18 if Congress doesn't act. On Wednesday at a White House meeting she said the U.S. is "staring into a catastrophe." Meanwhile, dramatic swings in U.K. bond markets show surging inflation expectations. And the European Central Bank today will release the minutes of its September meeting, where President Christine Lagarde signaled that the bank will keep monetary policy loose for some time.

Now on to today's news and analysis.

Top News

Democrats Weigh GOP Offer for Short-Term Debt-Limit Extension

Senate Democrats were poised to accept a GOP proposal to defer the showdown over the debt ceiling until later this year, lawmakers said, as administration officials and corporate executives issued dire warnings about the dangers of a possible government default.

How the U.S. Could Address the Debt Ceiling

U.S. Economy

How the Tax Bill Could Hit Two U.S. Companies

Proposed tax increases on domestic and foreign profits would drive rates up for Agilent and Advance Auto, but in different ways.

Student-Loan Forgiveness to Include More Public-Sector Workers

Planned changes to the Public Service Loan Forgiveness program will help roughly 550,000 borrowers of the 1.3 million enrolled in the program get closer to loan forgiveness, the Education Department said.

Key Developments Around the World

Inflation Worries Hit U.K. Markets as Energy Prices Soar

Surging energy costs have spread fear among investors in recent weeks that inflation isn't going away. One place where the strains are being felt most acutely is the U.K., where bond markets have exhibited some wild moves.

Coal Shortages Push Up Prices, Weigh on Economies

Coal supply shortages are pushing prices for the fuel to record highs and laying bare the challenges to weaning the global economy off one of its most important -- and polluting -- energy sources.

China's Forex Reserves Fell in September

China's foreign-exchange reserves fell $31.5 billion in September from a month earlier, official data showed Thursday, as capital inflows rose and other currencies in the country's reserves weakened due to the dollar's appreciation. The nation's forex reserves -- the world's largest -- stood at $3.200 trillion at the end of September, down from $3.232 trillion at the end of August, according to the People's Bank of China. (Dow Jones Newswires)

European Union's Balkan Expansion Plans Stall

Biden administration officials and many in Europe worry the stalling of the EU's expansion into the Western Balkans opens the region to rivals and adversaries including Russia and China, which have interests there.

Johnson Says Low-Paid Migrants Are No Answer to Labor Shortages

British Prime Minister Boris Johnson said he would press ahead with his government's pledge to end the influx of low-paid migrant workers despite the country's labor shortages, describing it as a radical change for the British economy.

Financial Regulation Roundup

U.S. to Redouble Efforts in Combating White-Collar Crime

A Justice Department official gave a first glimpse into the Biden administration's approach to white-collar crime, saying the agency aims to weed out wrongdoing by companies and their executives that harm national security.

Justice Department Sets Up Cryptocurrency Enforcement Team

The Justice Department is creating a national cryptocurrency enforcement team to tackle investigations and prosecutions of criminal misuses of cryptocurrency and to recover the illicit proceeds from these crimes, Deputy Attorney General Lisa Monaco said.

Biden Antitrust Nominee Gets Warm Senate Reception

President Biden's nominee to lead the Justice Department's antitrust division sailed through his Senate confirmation hearing, receiving bipartisan support from lawmakers concerned about corporate dominance.

Forward Guidance

Thursday (all times ET)

7:30 a.m.: European Central Bank releases Sept. 8-9 meeting minutes

8:40 a.m.: New York Fed's Williams speaks at conference on inflation and business cycle dynamics

9 a.m.: European Central Bank's Lane gives speech at Central Bank of Ireland webinar on the importance of data; European Central Bank's Schnabel gives speech at joint ECB-Cleveland Fed conference on inflation; Bank of Israel releases policy statement

11:45 a.m.: European Central Bank's Lane speaks on panel at joint ECB-Cleveland Fed conference on inflation

12 p.m.: Bank of Canada's Macklem gives speech on global financial architecture

3 p.m.: Federal Reserve releases August U.S. consumer-credit data

Friday

Time N/A: Reserve Bank of India releases policy statement

5:30 a.m.: Bank of England releases financial policy summary and record

8 a.m.: European Central Bank's Panetta speaks on panel at conference on global trade and finance organized by Bank of England and U.K. Treasury

8:30 a.m.: U.S. Labor Department releases September jobs report

Research

Dire Warnings by Economists Over U.S. Debt Limit Standoff

As Congress continues wrestling with raising the U.S. government debt ceiling, economists are sounding the warning bell again over this dangerous standoff. Joe Brusuelas, chief economist with advisory firm RSM, wrote Wednesday that "the front end of the Treasury curve is flashing red" over the possibility of a government debt default on Oct. 18. "Investors have begun dumping their safe-haven assets in favor of holding cash, causing interest rates on Treasury bills with mid-October maturities to increase," he wrote. Meanwhile, Gregory Daco, an economist with Oxford Economics, predicted that should the U.S. cease being able to borrow, a resulting cut in government revenue "would equal at least 7% of GDP, pushing the U.S. economy into a self-inflicted recession, if prolonged. The economy would lose over 5 million jobs, with the unemployment rate surging up to 8%."

-- By Michael S. Derby

Commentary

As Central Banks Taper, Investors Should Take Cover

As the world's two major central banks prepare to turn off the taps, financial markets are on notice and asset managers will need all the downside protection they can get, Dimitris Valatsas writes.

Mr. Valatsas is chief economist at Greenmantle, a macroeconomic and geopolitical advisory firm.

U.S. Trade Policy Adapts to a China That Will Never Change

U.S. Trade Representative Katherine Tai's fatalistic take echoes a school of thought popular in the Trump administration and among some in the Biden orbit: Engagement was always doomed to fail, Greg Ip writes.

China's Property Fantasia Turns Nightmarish

Investors in Chinese property developer Fantasia's dollar debt who a year ago feasted on juicy yields, now find themselves without their principal. Many others could find themselves in a similar position soon, Jacky Wong writes.

Basis Points

U.S. private-sector employment increased by 568,000 in September, according to the ADP National Economic Report. The gain was the biggest since June and well above forecasts from economists surveyed by The Wall Street Journal who expected an increase of 425,000 jobs. (Dow Jones Newswires)

Eurozone retail sales rose 0.3% in August from July, the European Union's statistics agency Eurostat said, adding that the volume of retail sales in July fell by a downwardly revised 2.6%. Economists polled by The Wall Street Journal had forecast a 0.8% rise for August. (DJN)

German manufacturing orders declined 7.7% on month in August in adjusted terms, following a revised 4.9% increase in July, according to federal statistics office Destatis. Economists polled by The Wall Street Journal had expected orders to drop 1.5% on month in August. (DJN)

Retail sales in Brazil declined a seasonally adjusted 3.1% on the month in August and fell 4.1% from a year earlier, the Brazilian Institute of Geography and Statistics said, after shoppers took advantage of July sales, then bought less as rapidly rising prices cut into their spending power. Sales in July climbed a revised 2.7% on the month, more than twice the 1.2% increase originally reported, and rose 5.7% from a year earlier. (DJN)

 

(END) Dow Jones Newswires

October 07, 2021 09:17 ET (13:17 GMT)

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