Last week’s biggest news was Senate Republicans offering (and Democrats accepting) an agreement to raise the US national debt ceiling by $480 billion, eliminating the near term risk of a technical default on US Treasuries and giving Democrats time to pass a budget reconciliation bill with a new debt ceiling limit that would alleviate the risk until sometime after the 2022 midterm elections.
Stocks rallied on the news, with cyclicals outperforming while defensives lagged. The energy sector was a standpoint performer with a 5.0% return on the week. International stocks were higher, particularly emerging markets which benefitted from a strong rebound in Chinese equities on Thursday and Friday.
Bond yields also moved higher in the wake of the debt ceiling agreement. 10y Treasuries finished the week at 1.61%, the highest level since early June. IG spreads were largely unchanged while HY spreads tightened. Energy prices rose again last week. US benchmark West Texas Intermediate finished at a 7-year high, just shy of $80/barrel. The move in crude sent gasoline prices to fresh multi-year highs as well. Meanwhile, natural gas hit a 14-year high on Tuesday before easing back in the latter half of the week.
Finally, the monthly payroll report from the Bureau of Labor Statistics missed expectations with 194k nonfarm payrolls added versus consensus estimates of 500k, calling into question whether the Fed will announce asset purchase tapering at its upcoming meeting in early November.