Debt drama

Tensions over the debt ceiling will likely be punted to December after Senate Republican leader Mitch McConnell offered to raise the limit to avoid an immediate risk of default. While Democrats and the GOP are still working on an agreement, any deal would set up another bruising political fight for the end of the year. Earlier on Wednesday, Defense Secretary Lloyd Austin warned that a default would "threaten national security" and America's ability to defend itself.

Market movement: As it looked like the U.S. was moving closer to a default on Wednesday, all 11 sectors of the S&P 500 were flashing red. However, as soon as top Senate Republicans proposed the short-term debt limit extension, the major indexes turned around to close the day in the green. Some strategists, like Wells Fargo's Paul Christopher, still caution that while the debt ceiling drama could spark more market volatility, the "economic expansion ultimately will be the main influence on equity and bond prices through next year."

"Basically, I'm glad that Mitch McConnell finally saw the light," said Senate Budget Chair Bernie Sanders. The Republicans "have finally done the right thing and at least we now have another couple months in order to get a permanent solution." "This will moot Democrats' excuses about the time crunch they created," McConnell fired back, adding it would "give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation."

Why does the U.S. have a debt ceiling? The U.S. first instituted a statutory debt limit with the Second Liberty Bond Act of 1917, setting the aggregate amount of debt that could be accumulated through individual categories like bonds and bills. Later in 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments. The debt limit exists to ensure the "power of the purse" stays with the legislative branch and frees up Congress from approving each individual expenditure, though most countries do not have a limit and debate the funding of their spending during the budgetary process. (7 comments)

Wild ride

There are some wild swings going on in the energy market as traders seek to capitalize on shifting sentiments amid a global energy crisis. Yesterday, European benchmark TTF natural gas futures jumped as much as 40% to a record €162.125/MWhr - in the span of a few minutes - after closing 20% higher on Tuesday. But the rally didn't hold as Vladimir Putin chose a timely moment to leverage his nation as an oil and gas superpower.

Snapshot: The Russian leader proposed to stabilize the environment with an offer to export record volumes of vital fuel to the continent. The advance could pressure European officials and regulators into approving Nord Stream 2, a controversial pipeline linking Russia and Germany that is close to launching. Flows of Gazprom (OTCPK:OGZPY) gas to Europe have been analyzed by many energy traders as winter approaches, and the high prices there have spilled over to the U.S.

Meanwhile, U.S. Energy Secretary Jennifer Granholm raised the prospect of releasing crude oil from the government's strategic petroleum reserve at the FT Energy Transition Strategies Summit. "It's a tool that's under consideration," she declared, as average prices at the pump hover around $3.19/gallon - the highest in seven years. Granholm also didn't rule out a ban on crude exports, saying it was an additional tool that could calm markets and bring oil prices down.

Outlook: As mentioned on SA earlier this week, some are calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050. J.P. Morgan's Marko Kolanovic suggests following coal prices to determine supply, demand and cost of capital for other fossil fuels, which if stay at elevated levels, could lead to inflationary pushback to ESG investing. "The most likely outcome of the current energy crisis is increased production at significantly higher energy prices, which would stabilize the global economy and energy infrastructure, but also temporarily slow down the energy transition." (27 comments)

Doubling down

General Motors (GM) has announced ambitious plans to take on EV market leader Tesla (TSLA), as well as traditional rivals Ford (F) and Toyota (TM), which are electrifying their lineups. GM intends to double revenue by the end of the decade by expanding beyond traditional auto manufacturing to embrace new products. The company already announced plans for high EV volumes last November, targeting 30 new models by 2025.

Flashback: Some may remember GM's speed bumps in the EV space with the Chevy Bolt, which was subject to a number of recalls due to its battery pack. In August, GM even issued a statement to customers recommending they park their Bolts in open areas, and at least 50 feet away from other vehicles, due to the possibility of catching fire. The latest drive may go a long way to relate how GM is improving its image and its plans going forward.

CEO Mary Barra specifically cited software and services as contributing a "substantial portion" of its planned revenue growth. Another "substantial portion" would come from commercializing Cruise, the GM-backed autonomous car startup, as well as top-line growth from ride-sharing and hauling tied to these self-driving capabilities. The company will also build new EV manufacturing plants if demand rises quickly and will retrofit current facilities to make the products.

By the numbers: It's a pretty long-range financial goal, but GM hopes its efforts will boost operating margins to 12%-14% by 2030, from 7.9% last year. Annual revenue is expected to double to $280B, from a five-year average of about $140B. (59 comments)

Biden to meet Xi

It looks like the U.S. is going back to top-level engagement with China as President Biden and Xi Jinping agreed to hold a virtual summit this year. It will be part of an effort to manage competition between the two countries, but details of the gathering are still being worked out. Xi hasn't left China since the start of the pandemic and does not plan to attend any overseas events in the near future, including the G20, COP26 and APEC.

Movement: The news sent the iShares China Large-Cap ETF (NYSEARCA:FXI) up 2.6% premarket. Chinese markets are closed for most of the week due to holidays.

The latest meeting was brokered by Jake Sullivan, U.S. national security advisor, and Yang Jiechi, China's top foreign policy official. The two met in Zurich this week for talks that were described as "productive" compared to the gathering that took place in Anchorage back in March. Sullivan raised further concerns about a range of issues that have affected U.S. investment, including the crackdown on the pro-democracy movement in Hong Kong, the treatment of Uyghurs in Xinjiang and Chinese military activity around Taiwan.

Outlook: Trade will also be at the top of the agenda with China following comments made by U.S. Trade Representative Katherine Tai earlier this week. She vowed to enforce Phase 1 of a trade deal in which Beijing pledged to buy at least $200B more U.S. goods and services over 2020 and 2021, compared to 2017. However, China had only reached 62% of that target as of August, based on export data compiled by the Peterson Institute for International Economics. Tai additionally said there were "serious concerns" about the country's "state-centered and non-market trade practices," which were not addressed under the current framework. (2 comments)

Today's Markets

In Asia, Japan +0.5%. Hong Kong +3.1%. China closed. India +0.9%.
In Europe, at midday, London +0.7%. Paris +1.2%. Frankfurt +1.1%.
Futures at 6:20, Dow +0.4%. S&P +0.6%. Nasdaq +0.9%. Crude -2.3% at $75.68. Gold -0.1% at $1760.10. Bitcoin +6.8% at $54035.
Ten-year Treasury Yield flat at 1.53%

Today's Economic Calendar

7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:45 Fed’s Mester: "Inflation: Drivers and Dynamics Conference 2021"
3:00 PM Consumer Credit
4:30 PM Fed Balance Sheet
4:30 PM Money Supply

Companies reporting earnings today »

What else is happening...

Highest level since mid-May... Bitcoin (BTC-USD) retakes $1T market cap.

New denim styles drive Levi Strauss (NYSE:LEVI) earnings beat and raised outlook.

Nvidia (NASDAQ:NVDA) proposes concessions to EU for $54B Arm (ARMHF) deal.

Palantir (NYSE:PLTR) gets pushback from bearish analysts over Army contract.

Cannabis in spotlight: What to expect from Tilray's (NASDAQ:TLRY) FQ1 earnings?

Sweden, Denmark halt Moderna's (NASDAQ:MRNA) COVID shot for younger people.

Electronic Arts (NASDAQ:EA) is the biggest S&P loser on Battlefield bug reports.

Apple (NASDAQ:AAPL) to face EU antitrust charge over NFC chip - Reuters.

Affirm Holdings (NASDAQ:AFRM) skyrockets as Target (NYSE:TGT) promotes partnership.

Twitter (NYSE:TWTR) to sell mobile ad firm MoPub to AppLovin for $1B.

NASA moves two astronauts off Boeing (NYSE:BA) Starliner project to SpaceX (SPACE).