Foolish Weekly Macro Wrap Up

We take a look at two global economic updates or interesting key developments that happened last week that investors should take note of. First, we’ll look at the looming U.S. debt ceiling showdown over raising the US debt ceiling. Then we’ll move on to look at Singapore’s manufacturing output.

US Debt Looming Crisis

On 25th Sept, U.S. Treasury Secretary Jack Lew warned Congress that the United States would exhaust its borrowing capacity by October 17, at which point it would have only about $30 billion in cash on hand.

In his letter to congressional leaders, Lew also mentioned, “If the government should ultimately become unable to pay all of its bills, the results could be catastrophic”.

With the deadline just around three weeks time, the outcome of the debt ceiling is still undecided as Democratic and Republican lawmakers are once again deeply divided over how to extend the Treasury’s borrowing authority. Even though the clock is ticking away, the Republican-controlled House of Representatives, is focused on dismantling Obama’s healthcare law in exchange for their debt limit vote.

Nevertheless, it seems that Barrack Obama is refusing to bow down to Republican demands but urged them to vote in favour of raising the debt ceiling limit. He remarked, “There will be areas where we can work together. There will be areas where we disagree. But do not threaten to burn the house down simply because you haven’t gotten a hundred percent of your way”.

Singapore’s Manufacturing Output expands

Singapore’s manufacturing sector in August registered a modest growth of 3.5% as compared from a year earlier, bolstered by a 5.3% increase in electronics cluster according to the Singapore Economic Development Board (EDB).

The semiconductors segment headed the expansion, recording a strong growth of 12.7% which alone accounted for 20.2% of overall industrial production. The expansion of the electronics sector helped to offset a 1.9% contraction in biomedical output due to a weaker pharmaceuticals sector.

The growth numbers came in below consensus with analysts projecting growth of factory output to climb 4.9% year-on-year. Excluding biomedical manufacturing, Singapore’s industrial output grew 4.8%, missing expectations

While Singapore’s purchasing managers’ index (PMI) fell to 50.5 last month from 51.8 in July, it remained above the key 50-point level which indicates that Singapore is still on an expansion phase.

Song Seng Wun, a regional economist at CIMB Research, said: “We are still seeing modest recovery in Asia – China appears to be stabilising. In Europe, they are starting to crawl out of the recession. (As for the US), I think once we pass this uncertain period of whether the government is going to shut down, (it) looks like it is on that slow recovery mode.

“So all things together, it looks like Singapore manufacturing, which is very export-dependent, is on that road to recovery.”

With the manufacturing sector picking up its activity, semiconductor companies like UMS holdings (SGX: 558) and Venture Corporation (SGX: V03) are likely to benefit. In line with the positive global developments, the Strait Times Index (SGX: ^STI) has also rebounded 200 points lately.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.