U.S. Debt Ceiling Given Temporary Reprieve Until December, Data in UK, U.S. & Euro Area Turns Negative, more…


Geopolitical tensions between the United States and North Korea continue to expand following the North’s latest missile launch of what is said to be a hydrogen bomb. Consider that for the past decade North Korea have been making slow but steady progress on developing their nuclear programme. Through the media today we are led to believe that over the past three to four months in particular the country’s technological capability has grown substantially (all in spite of heavy economic sanctions). On the surface this appears the case. However, until a few weeks ago, the consensus was that North Korea neither possessed the ability to target the United States or were in ownership of an advanced nuclear arsenal. Now, both are being heavily pushed throughout the media. As tensions are exacerbated, so is North Korea’s level of weaponry it seems. Exactly how plausible it is to advance a nuclear programme to this degree, and within a narrow time frame, is a question that remains unasked.

Amidst threats from Donald Trump to cut off trade with nations that do business with North Korea, and the promise by Defense Secretary Jim Mattis of a ‘massive military response’ should U.S. territory or allies be targeted, the September deadline for raising the U.S. debt ceiling has just been extended to the middle of December.

We now have a situation where the Federal Reserve will announce interest rates for December on the 13th, the UK will announce interest rates on the 14th, the ECB may announce plans to possibly ‘taper’ their asset purchase programme on the 14th (assuming they fail to do so in October), and the U.S. debt ceiling will come up for renewal on the 15th. There exists the potential for not only the UK increasing rates, but for the Fed to further ‘normalise‘ monetary policy at a time when the debt ceiling comes directly into focus once again. The prospect of a U.S. government shutdown over the Christmas season or into 2018 will no doubt be a narrative that gains strength over the coming weeks. It would also set the tone economically for the next 12 months ahead.

Elsewhere, the trend for stagnating/contracting economic data continues, especially in the UK. Car sales were down for the fifth month in a row, and construction came in at a one year low. The latest U.S. and German factory order numbers also turned negative. The Euro Area as well reported negative growth in retail sales, with countries such as Italy, Belgium, Austria and Slovakia among those contracting.

USA Today: Trump endorses short-term debt-limit increase backed by Democrats

  • President Trump endorsed a short-term increase in the nation’s debt limit suggested by Democratic leaders Wednesday, a strategy that puts him at odds with many in his own party — including House Speaker Paul Ryan, R-Wis.
  • In a joint statement, Senate Minority Leader Chuck Schumer, D-N.Y., and House Minority Leader Nancy Pelosi, D-Calif., said that in a Wednesday White House meeting, “the President and Congressional leadership agreed to pass aid for (Hurricane) Harvey, an extension of the debt limit, and a continuing resolution both to December 15, all together. Both sides have every intention of avoiding default in December and look forward to working together on the many issues before us.”

CNBC: ECB holds interest rates steady, says it’s ready to increase stimulus if necessary

  • The European Central Bank (ECB) left its benchmark interest rate unchanged Thursday and gave no clarity on the anticipated wind-down of its stimulus program.
  • The central bank held interest rates at 0.0 percent and kept the door open for even more stimulus, saying that it stands poised to increase its asset purchase program if needed.
  • “The Governing Council confirms that the net asset purchases, at the current monthly pace of 60 billion euros, are intended to run until the end of December 2017, or beyond, if necessary,” the ECB said in the statement.

Sky News: David Davis – Brexit bill row could last until end of negotiations

  • David Davis has suggested Britain could be arguing over the so-called Brexit bill until the very end of negotiations with the EU.
  • Mr Davis admitted the EU and UK had “significant differences” and “very different legal stances” over what Britain will owe Brussels on its departure.
  • Mr Davis signalled on Tuesday no final Brexit bill would be agreed until the eve of Britain’s EU departure in March 2019.
  • He said: “My expectation is the money argument will go on for the full duration of the negotiation.

BBC: UK car sales fall for fifth month in a row

  • Sales of new cars in the UK fell for the fifth month in row during August, with demand for diesel cars plunging more than a fifth.
  • There were 76,433 new car registration last month, the Society of Motor Manufacturers and Traders (SMMT) said.
  • The figure was down 6.4% from August last year, while diesel sales – which have been hit by worries over air quality – fell by 21.3%.
  • The SMMT said about 1.64 million new cars had been sold in 2017 so far, down 2.4% from last year.

Reuters: UK construction growth slides to 1-year low in August – PMI

  • Growth in Britain’s construction firms fell unexpectedly to a one-year low in August, hit by an investment slump in the commercial sector as Brexit uncertainty weighed on the economy, a survey showed on Monday.
  • Countering more upbeat news about the economy last week, the Markit/CIPS Construction Purchasing Managers’ Index (PMI) fell to 51.1 from 51.9 in July, closer to the 50 mark that indicates stagnation.

VOA: US Factory Orders Tumbled 3.3 Percent in July

  • The Commerce Department said Tuesday that factory orders declined 3.3 percent in July, after a 3.2 percent gain last month. July’s decline was mostly because of a 19.2 percent drop in orders in the volatile transportation equipment category. Orders for civilian aircraft — which can vary wildly from month to month — tumbled 70.8 percent in July after a 129.3 percent gain last month.
  • Excluding the transportation sector that includes aircraft, factory orders rose 0.5 percent in July after a tiny 0.1 percent uptick last month.

New York Times: Stanley Fischer, Fed’s No. 2 Official, Is Stepping Down

  • Stanley Fischer, the vice chairman of the Federal Reserve, said Wednesday that he would resign in mid-October, an unexpected decision that gives President Trump greater leverage over central bank policy.
  • Mr. Fischer, 73, cited “personal reasons” in a brief letter addressed to Mr. Trump. His four-year term was to have ended next June.
  • The resignation puts immediate pressure on the Trump administration to replenish the Fed’s depleted board. Mr. Fischer’s departure would leave only three people in the seven board seats, the smallest number of governors in the Fed’s history.
  • It also means that Mr. Trump can appoint a majority of the Fed’s board, bending the direction of its policy. Mr. Trump has repeatedly said that he wants the Fed to loosen some of the regulatory strictures it has imposed in response to the 2008 financial crisis.

Reuters: Federal Reserve should be patient on rate hikes, says Kaplan

  • The Federal Reserve should not raise interest rates for the time being, a U.S. central banker said on Tuesday, joining a chorus of Fed policymakers advocating a wait-and-see approach on rate hikes with inflation as low as it is.
  • “I actually believe we should be patient here,” said Robert Kaplan, who runs the Dallas Federal Reserve Bank and who is one of nine current voters on Fed policy this year.

Reuters: Fed’s Kaplan sticks to view that balance sheet should shrink

  • Hurricane Harvey was a “significant” event that will slow the Texas and perhaps the U.S. economy for a few months, but it is no reason for the Federal Reserve to reconsider a plan to start trimming its $4.5 trillion balance sheet as soon as next month.
  • “Harvey would not cause me to change my view on the timing” of when the Fed should begin trimming the balance sheet, which should be “as soon as possible,” Dallas Federal Reserve Bank President Robert Kaplan told reporters on Tuesday.

Bloomberg: Kashkari Says Fed May Have Harmed Economy With Rate Hikes

  • Federal Reserve interest-rate increases may be “doing real harm” to the U.S. economy, which would help explain why inflation is low and job growth has slowed, said Minneapolis Fed President Neel Kashkari, one of the central bank’s most dovish policy makers.
  • “It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said Tuesday during a talk at the University of Minnesota in Minneapolis. “These premature rate hikes that we are embarking on, they’re not free, and I think we need to remind ourselves of that.”

CNBC: Fed should be cautious in face of weak inflation: Brainard

  • Inflation is falling “well short” of target so the Federal Reserve should be cautious about raising interest rates until it is confident of a rebound, an influential Fed policymaker said on Tuesday in making the dovish case ahead of a key policy meeting.
  • “We should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard said in a speech in at the Economic Club of New York.
  • “There is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy,” she added. “I believe it is important to be clear that we would be comfortable with inflation moving modestly above our target for a time.”

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