Debt Ceiling, Nonfarm Payrolls, Energy, and More | Top Three Things to Watch this Week

Debt Ceiling and Nonfarm Payrolls

"Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead." - Paul Tudor Jones The world is a giant flow chart of capital and we are sympathetic to the idea that there are few things that exist in isolation of those macro drifts. Where people, price, and politics meet, the macro story begins. Washington D.C. remains at the focal point after a bill to avert a partial government shutdown was signed by President Biden Thursday night. There is no resolution to the debt ceiling yet and the looming deadline of October 18 is inching closer. Treasury Secretary Janet Yellen sent a letter to congress where she highlighted the knock-on effects that would result from a failure to raise or suspend the debt ceiling:

  • Business and consumer confidence shaken

  • Raise borrowing costs for taxpayers

  • Negative impact on the credit rating of the U.S.

  • Disruption in financial markets

A recent Tweet from Christophe Barraud laid out the path forward from here and what can happen until the treasury will be insolvent.

There are two ways forward: Either a bipartisan infrastructure framework through which the debt ceiling gets suspended/raised or Democrats pursue a 50-vote threshold reconciliation process.

Reconciliation 1010 - Committee for a Responsible Federal Budget

The inability to start the reconciliation process in a timely manner or pass a bipartisan infrastructure bill would ultimately mean that a default is within the realm of possibility.

Playing a Dangerous Game With the Debt Limit - Moody's Analytics

Nonfarm Payrolls (October 8, 2021; 7:30 am CT)

In addition to maneuvering through the waters of politics on Capitol Hill, September Nonfarm Payrolls will be released on Friday.

After only +235k jobs added in August, consensus is calling for +470k jobs added last month.

We pointed to improving hiring trends in services last Sunday and mentioned Jay Powell's hawkish tone during his last press conference. Possibly, it is not the taper but rather the pace of tapering that is data-dependent at this point.

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Natural Gas, Coal and Global Energy

Amidst what are already slow economic growth rates in China relative to historical standards, power outages across the country are catching the attention of regulators.

According to the Financial Times, officials told state-owned energy companies to "secure supplies for this winter at all cost".

China's coal miners vow to 'go all out' to beat power crisis - FT

  • China Foundry Coke Domestic Spot Price Shanghai (white line)

  • China Coking Coal A 10.5% V 20% Shanxi (red line)

  • China Calcined Pet Coke S 3%max EXW (green line)

  • China First Grade Metallurgical Coke Shandong (purple line)

  • China Coal Tar Pitch Coking Value 53%min EXW (yellow line)

When former Glencore CEO, Ivan Glasenberg spoke during the last stretch of his tenure, he described the state of the coal market as follows:

  • "The world wants to reduce steam coal production, and there is no doubt that mining companies are not investing in steam coal mining anymore,"

  • "What you have is that supply is cut off and new supply isn't coming to market, but demand is still there."

Glencore CEO Glasenberg on the New Commodity Economy, Qatar Economic Forum

The vast divergence between real economic demand and coal supply becomes visible when we take a look at global climate goals in contrast to coal projects planned/under construction.

Deep Trouble - Tracking Global Coal Mine Proposals

Global emission goals are diametrically opposed to what some countries might be aiming for in the short term.

Thermal coal has held around 70% of China's total electricity production and four Chinese provinces account for nearly a quarter of all proposed coal mine capacity worldwide.

Natural Gas

As a bridge between fossil fuels and fully renewable solutions, natural gas becomes highly attractive. Until nuclear reaches broader acceptance, solar becomes more widely distributed, and battery solutions are part of a more decentralized grid, there are a variety of geopolitical implications we will have to face with natural gas.

Graphs via CelsiusEnergy.Net

"In European countries and Britain combined, storage sites are currently around 72% full, compared with 94% full at the same time last year, and 85% full on average over the past 10 years by the end of September." - Reuters, On the cusp of Europe's winter season, gas storage hits 10-yr low

Energy Prices Explosion is also linked to expectations of a harsh winter - Christophe Barraud

  • Energy policy impacts underlying prices.

  • OPEC+ countries have their own economic agenda as they aim to modernize their own countries.

  • Innovation has barely failed in finding new solutions and necessity is the ultimate driver thereof. Needless to say, though, innovation takes time to evolve and be distributed to the end-consumer.

Food for Thought

Everything around reconciliation, how it works, etc. by the Brooking Institute

Budget Reconciliation: The Basic - House Committee on the Budget

Why We Doubt Inflationary Dynamics Will Revert to What They Were Pre-Pandemic - Bridgewater

The Countervailing Forces on Bond Yields and the Timing of a Rise - Bridgewater

What Will the Global Push to Net Zero Mean for Oil - Bridgewater

IEA Global Energy by 2050 -- Assumptions, Energy Sources etc. (relates to this notes Natural Gas, Coal and Global Energy Section)

Third-party links may or may not differ from our own views. We think that those are superb sources to gather thoughts, ideas, and "stress test" ideas.


PepsiCo (PEP) ahead of the bell on Tuesday:

  • Consensus: EPS est. $1.73; Revenue est. $19.32bn

  • Any comments on inflationary dynamics within Pepsi's supply chain will be monitored

Conagra Brands (CAG) ahead of the bell on Thursday:

  • Consensuses: est. $0.48 EPS; Revenue est. $2.52bn

  • Comments on inflation, labor shortages, etc. are anticipated

Blue Line Capital

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