A warning on growth, transitory inflation is not going away, and it’s too early to declare Covid victory. 

Delayed recovery

Goldman Sachs Group Inc. economists blamed the slow rebound in consumer spending for their decision to cut U.S. growth forecasts for this year and next. There’s certainly evidence to back the view that the American consumer has yet to start firing on all cylinders, with the most recent data showing confidence dropped to a seven-month low in September. At the same time, the labor market continues to mystify economic forecasters, while the Federal Reserve remains on track to start lifting stimulus measures next month. All that suggests markets will stay on guard for volatility. 

Inflation 

The big debate dominating investor conversations continues to be whether or not the current pace of consumer price increases will quickly pass. Some of Wall Street’s biggest banks remain confident that inflation is transitory, and recommend buying the dip in stocks. Policy makers, however, are getting increasingly concerned that it  will linger for longer. Traders now expect the Bank of England to join authorities raising rates before the end of the year as members of the rate-setting committee talk up the risks from inflation. 

Not there yet 

Anthony Fauci said that the level of infections in the U.S. remains too high for a return to normal. His comments come as the country sees daily new cases fall to around 95,000 from over 150,000 a month ago. For investors, new treatments and the continued opening of economies as well as  international travel mean that while the pandemic is certainly not over, it appears to be entering a new phase. That suggests picking equity market winners is about to get harder. 

Markets mixed

Rising energy prices continue to be a drag on equities. Overnight the MSCI Asia Pacific Index rose 0.7% on signs the Chinese crackdown on tech companies is slowing, while Japan’s Topix index closed 1.8% higher on a reversal of plans to hike capital gains tax. In Europe the Stoxx 600 Index was down 0.1% at 5:50 a.m. Eastern Time. S&P 500 futures pointed to move lower at the open, the cash Treasury market is closed for the holiday, oil was over $81 a barrel and gold slipped. 

Coming up... 

It’s the start of the IMF/World Bank meetings in Washington. There could be a decision on the fate of IMF leader Kristalina Georgieva as soon as today amid an ongoing scandal about actions she took while at the World Bank. Chicago Fed President Charles Evans speaks later. The Institute of International Finance annual meeting begins. 

What we've been reading

Here's what caught our eye over the weekend.

• Odd Lots: Michael Pettis on what Evergrande means for China’s macro economy. 
• Five traders tell us how to survive a world of disrupted markets. 
• How Evergrande’s rags-to-riches founder is trying to save his empire.
• More stocks are moving in tandem. That’s a troubling sign for bulls.
• Brexit clash on Northern Ireland means headaches for Johnson. 
• U.S. arrests couple on spy charges to sell nuclear-sub data. 
• David Card, Joshua Angrist and Guido Imbens win the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

And finally, here’s what Lorcan’s interested in this morning

I must confess that I had something of a Pavlovian "oh no, that's bad" response to a headline last week stating Global Debt to Hit 260% of GDP, But Low Rates to Help, S&P Says.

There was a time when we all were told that debt levels were important, and anything over 90% of GDP was very bad indeed. And while the significance of that threshold has since been, um, revised, surely 260% is still too much?

Well, I think we can look at the second half of the sentence above to see why things are probably fine. The cost of debt serving is basically zero in a lot of the world at the moment, and actually a net contributor to the exchequer in some cases. 

To find out how much of a difference servicing costs can make, I don't have to go very far from home. Ireland issued a 5.4% 15-year bond in 2009. To be honest, the outlook wasn't great for the country at the time, and as you can from the chart below, things definitely got worse before they got better.

That bond is an 11.5 billion euro ($13.3 billion) instrument, meaning it costs the Irish government 620 million euro a year to service it. Fast forward to last month and Ireland issued a 20-year bond with a coupon of 0.55% -- locking in servicing costs of about a tenth of the 2009 bond. 

Ireland can certainly thank the European Central Bank for the incredibly cheap financing costs at the moment. Only last week the head of the Irish debt management agency said the extent of the ECB buying has been "extraordinary" (skip to 24 mins into the video) and that meant the net issuance of sovereign debt to investors last year and this year in the euro area has basically been zero.

So what does a debt-to-GDP ratio even mean anymore if governments can basically raise cash for free? I think it means the same as it ever did. The ratio makes a good headline, but other than that it is almost always a complete red herring. The only thing that matters for debt sustainability in the long term is how much a country paid when it issued the debt and how long it issued it for. 

This also means that treasury management agencies should be issuing debt as much as they can at the moment. Not necessarily to increase government spending, but to lock in once-in-generation servicing costs.
 
Unfortunately that simple logic runs into the debt-to-GDP thinking that has led to things like the Stability and Growth Pact in Europe and the debt ceiling in the U.S. 

Follow Bloomberg's Lorcan Roche Kelly on Twitter at @LorcanRK

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