In the last trading week in September, US indices intensified their correctional movement. Thus, the S&P 500 fell by 2.2%, while the capitalization of the Nasdaq 100 decreased by 3.5%. Both indicators showed their worst monthly performance since March 2020. The past month was difficult for the stock market amid expectations of rate hikes, controversies in parliament over raising the government debt ceiling, fears about inflation and concerns about the situation in the Chinese real estate market due to the problems of the developer China Evergrande Group. The yield on US 10-year Treasuries rose from 1.3% to 1.5%.
The US economy expanded 6.7% in the second quarter at an annualized rate, final data from the US Department of Commerce showed. Earlier it was announced a rise of 6.6%, and analysts on average did not expect a revision of the figure. The US Central Bank still expects that the period of high inflation will end, but it is difficult to determine a specific date, Powell said on Thursday at a hearing at the Financial Services Committee of the US House of Representatives. The rise in prices this year is the result of problems "on the supply side that we cannot control," he said. The increased rate of growth in consumer prices in the United States is associated with the recovery in economic activity after the COVID-19 pandemic and does not mean that such an inflationary regime will continue in the future. The head of the American Central Bank reiterated his words that the Fed would raise the base interest rate if "a significant increase in inflation causes serious concerns."
Powell acknowledged that the central bank could face difficult decisions next year if inflation remains high while unemployment rises. In turn, Yellen, who also participated in the committee's hearings, reiterated her call for lawmakers to quickly decide on the government's borrowing limit. The vote in favor of the increase in the limit does not imply new spending, but allows the Ministry of Finance to raise funds to pay the expenses approved by the government. Congress can either raise the limit, which will allow the Ministry of Finance to increase borrowing to a certain amount, or suspend it, giving the department the opportunity to borrow as much money as needed, until a certain date.
Markets in mainland China will be closed until Friday to celebrate Golden Week this week. On Monday, an online meeting of OPEC + will take place, at which a decision may be made to increase the quota for oil production from the current 400 thousand barrels per month. In the US, there will be statistics on industrial goods orders for August. ADP's preliminary labor market figures for September will be released on Wednesday, and Kansas City Fed President Esther George will speak. On Thursday, Cleveland Fed President Loretta Mester and New York Fed President John Williams will speak, as well as the ECB and Cleveland Fed's annual conference “Inflation: Drivers and Dynamics”. On Friday, a package of macroeconomic data on the US labor market for September will be published. These data may influence the Fed's decision on the monetary policy pursued.