Markets tumble on China and US debt flight

Dow slumped 614 (off session lows), decliners over advancers 6-1 & NAZ retreated 330.  The MLP index sank 6+ to 171 & the REIT index declined 2+ to 460.  Junk bond funds were being sold & Treasuries continued in strong demand.  Oil was off 1+ to 70 & gold gained 11 to 1763 (more on both below).

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Treasury Secretary Janet Yellen renewed her call for Congress to raise or suspend the nation's debt before Oct, warning that failure to do so could trigger an unprecedented financial crisis in the US.  "The U.S. has always paid its bills on time," Yellen wrote in an op-ed, "But the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe."  The Treasury Dep began implementing extraordinary measures to keep the gov running after the debt limit was reinstated in Aug around $22T – about $6T less than the actual level.  Yellen has told Congress the federal gov will run out of cash to pays its bills sometime in Oct.  The battle to raise the gov''s borrowing limit carries big risks for the broader economy:  With the total debt standing at $28.5T, the gov would be forced to slash federal aid programs unless the cap is either suspended or lifted.  But lawmakers are at an impasse over the debt ceiling: Dems are pressuring Reps to support an effort to raise or suspend the ceiling, adamant that they won't stick it in a partisan $3.5T spending bill.  But Senate Minority Leader Mitch McConnell has rejected an appeal by Yellen to raise the ceiling, arguing that Dems have the ability to go it alone.  "Let’s be clear: With a Democratic President, a Democratic House, and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility," McConnell tweeted last week.  "Republicans will not facilitate another reckless, partisan taxing and spending spree."  The battle to raise the gov's borrowing limit carries big risks for the broader economy: With the total debt standing at $28.5T, the gov would be forced to slash federal aid programs unless the cap is either suspended or lifted.  "Let’s be clear: With a Democratic President, a Democratic House, and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility," McConnell tweeted last week.  "Republicans will not facilitate another reckless, partisan taxing and spending spree."  Pres Biden has countered that Dems joined with GOP lawmakers 3 times under the Trump administration to suspend the limit & that the rising deficit is due to Rep spending.  He's argued the sweeping tax & spending package Dems are still crafting will be fully paid for.  "Let me remind you, these are the same folks who just four years ago passed the Trump tax cut," Biden said in Thurs remarks.  "It just ballooned the federal deficit."  The House is slated to hold a vote this week on a measure to suspend the debt limit & a separate short-term measure to extend the gov's funding beyond its expiration on Sep 30.

Yellen warns failure to raise debt ceiling could trigger 'economic catastrophe'

The House will vote this week on a measure to suspend the nation's $28T debt ceiling before the federal gov runs out of money to pay its bills in Oct.  In a letter to colleague, House Majority Leader Steny Hoyer said Demswill vote on the debt limit as well as a must-pass stopgap spending bill to keep the gov operating past Sep 30. It's unclear whether the 2 measures will be linked.  The House Rules Committee is meeting to draft a continuing resolution to extend gov funding thru early Dec.  Decoupling gov funding from the debt limit could help ensure the stopgap bill's passage, with more Reps willing to support a temporary funding bill that includes Bs in disaster aid to help recovery from Hurricane Ida.  At the same time, Dems may lose some political leverage if they do not tether the 2 measures together, which could force GOP lawmakers to go on the record & vote against the stopgap spending bill, forcing a gov shutdown.   Dems say they're still undecided on the matter.  "I don't think that decision's been made yet," House Budget Chair John Yarmuth, said, "We have several options for raising the debt ceiling, which is absolutely mandatory."  

Dems may link debt limit vote with govt funding bill, raising risk of shutdown

Gold futures cllimbed, ending higher for the first time in 4 sessions.  The precious metal found support, in part, due to worries about the potential collapse of Chinese property developer Evergrande & amid good physical demand in Asia.  Dec rose $12 (0.7%) to settle at $1763 an ounce, following 3 consecutive sessions of declines. 

Gold futures get a boost as Evergrande woes lead to risk-off sentiment

Oil futures settled lower, as concerns over a possible collapse of Chinese property developer Evergrande fed risk-off sentiment, pulling US & global stock markets sharply lower.  Evergrande's woes are threatening the outlook for the world's 2nd largest economy, making some investors question China's growth outlook & whether it's safe to invest there.  West Texas Intermediate crude for Oct fell $1.68 (2.3%) to settle at $70.29 a barrel 

Oil futures settle lower, pressured as concerns over Evergrande feed risk-off sentiment

Heated debates in DC over increasing the gov's borrowing limit built on the risk-off tone in markets.  Treasury Secretary Yellen called for Congress to raise the debt ceiling again, suggesting that to do otherwise would risk leaving the gov to default on payments & generate "widespread economic catastrophe."  Investors lost confidence in those guys in DC to solve massive gov debt problems with knee jerk reactions.  Some call that sloppy & careless.  These are the same guys who gave us the Afghanistan disaster, the southern border mess & haven't been able to fund the next 12 months of gov spending (almost $5T).  In short, investors lost the faith & are selling.  There was bargain bunting into the close which pared losses, but this remains a tough time for the bulls to make their case for stocks.  Sep has the makings of another bad month in what has traditionally been the toughest month for stocks.

Dow Jones Industrials