Supply crunch

Things appear to be getting worse, not better, along the global supply chain, which was upended by the coronavirus pandemic over a year ago. That means entire companies and industries are going to have to deal with more extremes for the foreseeable future, making business investment a shaky decision that compounds the original problem. The volatility and uncertainty also destroy demand as prices become too high for consumers. The phenomenon, called the "bullwhip effect," could end up damaging the economy in the short-term, with violent swings in a range of goods.

Warning bells: In an open letter to the United Nations General Assembly, business leaders from the International Chamber of Shipping, IATA and other transport groups (that account for more than $20T of annual global trade) sounded the alarm on the risks of a supply chain meltdown. "We are witnessing unprecedented disruptions and global delays and shortages on essential goods including electronics, food, fuel and medical supplies. Consumer demand is rising and the delays look set to worsen ahead of Christmas and continue into 2022. Our calls have been consistent and clear: freedom of movement for transport workers, for governments to use protocols that have been endorsed by international bodies for each sector and to prioritize transport workers for vaccinations... before global transport systems collapse."

Some of the effects were on display this week as three more U.K. energy companies were pushed out of business by sky-high natural gas prices. China is also considering raising power prices for factories as an energy shortage there has unleashed turmoil in commodities markets and prompted silicon makers to dramatically slash production. Over in the U.S., the Commerce Department delayed a decision on solar tariffs with the price of panels set to rise, while Dollar Tree (NASDAQ:DLTR) said it would sell more items above $1 to offset cost increases on a range of goods.

Do something! This time around, higher prices have put central banks between a rock and a hard place. Inflation is traditionally fought off by raising interest rates, but that might not be effective at the present given the supply chain issues taking place across the globe and the stage in the economic recovery. On the other hand, if easy monetary policy is left in place, price pressures could be compounded and result in a reduction in purchasing power or lead the economy to overheat.

Anti-vax content

The biggest social networks banned misinformation about COVID-19 early on in the pandemic, but some are taking further steps to weed out related content. Facebook (NASDAQ:FB) banned misinformation on all vaccines in February, Twitter (NYSE:TWTR) followed in March, while YouTube (GOOG, GOOGL) is now removing content that falsely alleges approved jabs are dangerous and cause severe health effects. That means videos will now be blocked on claims made against shots for diseases like measles or chickenpox, or clips that assert they cause autism, infertility or cancer.

Bigger picture: YouTube is going one step further by taking down the channels of high-profile anti-vaccine activists including Joseph Mercola and Robert F. Kennedy Jr., who experts say are sowing skepticism that's contributed to slowing vaccination rates across the country. "Free speech is the essential core value of liberal democracy. All other rights and ideals rest upon it. There is no instance in history when censorship and secrecy have advanced either democracy or public health," Kennedy responded through a representative.

YouTube didn't act sooner because it was focusing on misinformation specifically about coronavirus vaccines, said Matt Halprin, YouTube's vice president of global trust and safety. "Developing robust policies takes time... We wanted to launch a policy that is comprehensive, enforceable with consistency and adequately addresses the challenge."

Exception to the rule: "Given the importance of public discussion and debate to the scientific process, we will continue to allow content about vaccine policies, new vaccine trials, and historical vaccine successes or failures on YouTube."

Making sense of it all

Continuing some strength seen in the previous session, U.S. stock index futures all climbed another 0.6% overnight following a major selloff seen earlier in the week. The Dow and S&P 500 finished Wednesday up 0.2%, while tech stocks and the Nasdaq closed lower, down 0.2%. Bonds and higher rates are also in the spotlight, with the 10-year Treasury yield pulling back 3 bps to 1.51% after touching an intraday high of 1.56% on Wednesday.

Where do we go from here? "Some investors seem ready to move on from the 'there is no alternative' mind-set that has guided their decisions since the 2008 crisis, but TINA may be harder to quit than they think," writes the WSJ's Jon Sindreu. Others see pockets of alternative investments that provide a yield, or jumping into attractive individual stocks, with general market returns likely to be much more muted going forward. Looking for some new plays? Check out Seeking Alpha's Stock Ideas.

Analyst commentary: "The froth has continued. Only time will tell how long that will go," said Mary Erdoes, JPMorgan Chase head of asset and wealth management. Since the response by central banks to the coronavirus pandemic, "markets are up 30% to 50%, clearly not normal. We're enjoying it, but this is not a normal time period."

"If you own entire markets with the view that asset selection doesn't matter, that's great when the markets are going up," added Ashbel Williams, executive director and CIO of the Florida State Board of Administration. "But when things become really tough, and circumstances hit different industries and different companies in different ways... this is a time active management makes sense."

Trillion-dollar coin

The House on Wednesday passed a bill to suspend the U.S. debt ceiling, though the plan looks doomed in the Senate, with only hours to go before a partial shutdown of the federal government. Treasury Secretary Janet Yellen has also warned that on Oct. 18 the government will run out of money to meet its obligations to debtholders, setting up a drama-filled atmosphere on Capitol Hill. Congress has raised or suspended the ceiling 78 times since 1960, according to the Treasury, with the most recent motion taking place in 2019.

Game of chicken: Democrats are struggling to get the votes needed in the Senate if they go at it alone since they need all 50 senators within their caucus. Friction among party members over the amount of spending, as well as whether to tie the procedure to infrastructure or social programs and climate policy is also creating some theatrics. For their part, Republicans want to tie the debt ceiling increase to Democrats' massive legislation, which would put a spotlight on the party if they can't get it together ahead of the 2022 midterm elections (or would take the blame if the U.S. defaults).

"While I am hopeful that common ground can be found that would result in another historic investment in our nation, I cannot - and will not - support trillions in spending or an all or nothing approach that ignores the brutal fiscal reality our nation faces," critical centrist Sen. Joe Manchin (D., W. Va.) said in a statement.

Has the U.S. ever defaulted? While the technicals are always debated, and some say the U.S. has never formally defaulted, there were some scenarios in the past that could resemble it. The first time was in 1790, when the U.S. defaulted on its external debt obligations, while during the Great Depression in 1933, America had another domestic debt default related to the repayment of gold-based obligations. Some consider President Nixon's refusal in 1971 to redeem dollars for gold to constitute a partial default, while the U.S. was said to default on some Treasury bills in 1979.

Trillion-dollar coin: Echoing an idea that was originally floated during the debt ceiling crisis of 2011, there has been renewed talk in Washington of producing a very high-value currency to avoid the debt ceiling. Basically, the Treasury would mint a $1T platinum coin (under commemorative clauses), deposit it at the Federal Reserve, and the asset swap would result in an extra $1T to cover a big portion of Washington's bills. While not illegal, the accounting gimmick would be unprecedented, threaten the checks and balances of Congress and open a Pandora's box about all of public finance.

Today's Markets

In Asia, Japan -0.3%. Hong Kong -0.4%. China +0.9%. India -0.5%.
In Europe, at midday, London +0.2%. Paris flat. Frankfurt -0.3%.
Futures at 6:20, Dow +0.6%. S&P +0.6%. Nasdaq +0.6%. Crude -0.2% at $74.72. Gold +0.2% at $1725.40. Bitcoin +1.1% at $42937.
Ten-year Treasury Yield -3 bps to 1.51%

Today's Economic Calendar

8:30 GDP Q2
8:30 Initial Jobless Claims
8:30 Corporate profits
9:45 Chicago PMI
10:00 Fed's Williams: “Implications of Federal Reserve Actions in Response to the COVID-19 Pandemic”
10:30 EIA Natural Gas Inventory
11:00 Fed's Bostic: “Economic Mobility as a Tool for Sustainability”
11:30 Fed's Harker: "The Federal Reserve in Conversation: Developing Regulation, Sustainable Assets and Financial Markets"
12:30 PM Fed's Evans Speech
1:05 PM Fed's Bullard Speech
2:30 PM Fed's Daly Speech
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

Warby Parker (NYSE:WRBY) pops following direct-listing IPO.

Walmart (NYSE:WMT) to hire 150K associates for holiday season and beyond.

Uber (NYSE:UBER) launches 'The Holiday Shop' for on-demand seasonal delivery.

Virgin Galactic (NYSE:SPCE) takes off after FAA ends investigation.

Altria (NYSE:MO) may strategically divest stake in AB InBev (NYSE:BUD).

WSJ report finds Facebook (NASDAQ:FB) was targeting pre-teens for years.

Apple (NASDAQ:AAPL) analysts see early signs of strong iPhone 13 demand.

Elon Musk slams Biden's EV policy, wants unregulated crypto.

Regulation underway... Bitcoin (BTC-USD) faces biggest monthly decline since May.

AstraZeneca's (NASDAQ:AZN) COVID-19 jab shows 74% efficacy in U.S. trial - Reuters