US shutdown to begin on 1st October
U.S. government tells federal employees a shutdown may be imminent
US 30-year Treasury yields surge in Q3, reminiscent of 2009 chaos.
Bank of Japan reacts cautiously to surging bond yields, wary of yen's volatility.
Tokyo's inflation slows for the third consecutive month in September.
US government shutdown tensions persist, potential challenge to Speaker Kevin McCarthy.
Fed's Thomas Barkin suggests uncertainty about rate hikes amid potential government shutdown.
In a tumultuous finale to a trying month for US government bonds, Treasuries found themselves on a downward trajectory. As the dust settles on September, yields on 30-year Treasuries are primed for their most significant quarterly surge since the tumultuous days of 2009. Amid this tempestuous financial climate, even the savviest of investors, such as Bill Ackman, are bracing themselves for the possibility of yields soaring past the 5% threshold, a substantial leap from their current perch around 4.73%.
Across the Pacific in Japan, the financial landscape is equally turbulent. The Bank of Japan (BOJ) has been stirred into action by the recent surge in 30-year bond yields, which have scaled the dizzying heights of a decade-long zenith. In response, the BOJ has executed an unscheduled bond buying operation, albeit one that some might deem too modest to make a resounding statement. The challenge facing the BOJ is that it must tread cautiously to prevent any exacerbation of the yen's volatility, further complicating its already intricate dance in the market.
On the economic front, Tokyo's inflation has hit the brakes, slowing for the third consecutive month in September. This deceleration mirrors the BOJ's long-held belief that prices are on a trajectory to cool further. Notably, consumer prices, excluding the volatile fresh food category, exhibited a subdued ascent of 2.5%, falling short of expectations. Additionally, Japan's jobless rate held steady at 2.7% in August, while industrial output remained stagnant. Retail sales growth, once brisk, has now eased, marking a noticeable shift from the preceding month.
US shutdown update
Shifting gears to the US, the relentless tussle over a short-term continuing resolution to avert a government shutdown continues to dominate headlines. Kevin McCarthy has found himself wrestling with hardline members of his party in an effort to secure their approval. Seeking to sweeten the deal, McCarthy has taken to rebranding the proposal, hoping to win over skeptics. Meanwhile, murmurs of removing the Speaker from his position have been circulating among conservative critics, with Tom Emmer emerging as a potential challenger.
The ominous specter of a potential debt crisis looms large on the horizon, as billionaire hedge fund guru Ray Dalio has forewarned. Speaking candidly to CNBC, Dalio conveyed his concerns that the United States could soon find itself in the throes of such a crisis. Dalio's disquieting prophecy also painted a bleak economic portrait, suggesting that the nation's growth might teeter on the precipice, hovering perilously close to zero, with a margin of only 1% or 2% to spare.
In the realm of Fedspeaks, Thomas Barkin, a notable voice within the Federal Reserve, has offered his perspective on the ongoing debate surrounding interest rates. Barkin emphasized that it remains premature to ascertain whether the Fed should embark on another rate hike, citing the looming uncertainty stemming from the potential government shutdown. He further remarked that policymakers have some leeway to determine whether more action is necessary to tame inflation, suggesting that insights from the labor market could be enlightening in this regard.
Turning our attention to the data du jour, August's income and spending figures in the United States promise to provide valuable insights into the Federal Reserve's confidence in engineering a soft economic landing. Core PCE inflation, as well as Jerome Powell's favored "supercore" gauge, are anticipated to maintain their soft trajectory for the third consecutive month. In a parallel narrative, spending and income are set to reveal robust growth, painting a mixed picture of the nation's economic health.
In the euro area, the story echoes a similar sentiment, as flash data for September are expected to confirm a headline and core inflation rate dipping below the 5% benchmark. In a world gripped by financial uncertainty, these economic indicators serve as beacons of clarity, guiding us through the turbulence that engulfs the global economic landscape.