5 things to start your day

[Bloomberg]( Germany in limbo, Democrats head for showdown, and a world energy crunch. Horse trading Olaf Scholz of the [center-left]( Social Democrats[defeated]( Chancellor Angela Merkel’s conservatives in an extremely tight German election, sparking what could be months of [complex]( coalition talks to decide who will lead Europe’s biggest economy. Leaders of both parties said they aim to head the next government, while the Greens and the pro-business Free Democrats will hold sway in the new political order. With the election result ruling out a hard-left coalition, German stocks including renewables are outperforming this morning and expectations of higher public spending are rising. Showdown House Democrats are heading toward a showdown this week over President Joe Biden’s economic agenda. A planned [vote](on a $550 billion infrastructure package is due Thursday, with more negotiations to come on broader tax and spending plan. The high-stakes political battle is consuming politicians just days before a possible Oct. 1 government shutdown and a [payments default]( by the Treasury later in October if the federal [debt limit]( isn’t raised -- neither of which Congress is yet ready to address. Moderates are eager to get the bipartisan package, which has already passed the Senate, enacted. But progressives -- whose votes are likely vital -- are insisting on progress first on the bigger social-spending package. The Senate is also seen voting on a stopgap funding bill with a debt-ceiling suspension, but Republicans are likely to block its consideration. Crunch Europe’s energy [crisis]( has governments warning of blackouts and factories being forced to shut — and it’s now coming for the rest of the [world](. There isn’t enough gas to [fuel]( the post-pandemic recovery and refill depleted stocks before the cold months. Inventories at European storage facilities are at historically low levels for this time of year, while pipeline flows from Russia and Norway have been limited. Asia and Latin America won't be immune from the fallout. American exporters are poised to ship more liquefied natural gas than ever as new projects come online toward the end of the year. But as more gas goes abroad, less will be available at home. Even though gas prices have been notably lower in the U.S. than in Europe and Asia, they are trading near the highest level since 2014. Markets mixed A cautious risk-on tilt is returning to markets as traders keep a watchful eye on the fallout of China's Evergrande debt woes and the energy crisis. Shanghai’s Stock Exchange Composite Index led Asia lower, falling 0.8%. The MSCI Asia Pacific Index was 0.1% lower. Europe’s Stoxx 600 Index was 0.2% higher at 6:18 a.m. led by a relief rally in Germany’s benchmark DAX Index. S&P 500 futures pointed to a higher open, the 10-year Treasury yield was at 1.49%, oil rose toward $75 a barrel.  Coming up... It's a quiet day for U.S. data, with a report on August durable goods orders at 8:30 a.m. and Dallas Fed Manufacturing Activity for June due at 10:30 a.m. Regional Federal Reserve presidents John Williams and Charles Evans speak, as well as Fed Governor Lael Brainard. Aurora Cannabis Inc. is among companies reporting earnings. What we've been reading Here's what caught our eye over the last 24 hours. - Odd Lots: This is what the pandemic did to the [U.S. rail](system. - Parts of the U.S. health system “are in [dire straits](.” - Evergrande [pain]( spreads to the wealthy. - Bitcoin, Ether rally back to [levels]( just before China crypto ban. - Berlin voters back [expropriating]( big landlords. - China power crunch is next [economic shock](. - [Quants]( take over the bond world. And finally, here’s what Joe’s interested in this morning If you haven't read it yet, definitely check out today's[piece](from Stephen Stapczynski on the potential global fallout from the European natural gas shortage. These two paragraphs really caught my attention: The spike has forced some fertilizer producers in Europe to reduce output, with more expected to follow, threatening to increase costs for farmers and potentially adding to global food inflation. In the U.K., high energy prices have forced several suppliers out of business. Even a normally cold winter in the Northern Hemisphere is expected to drive up natural gas prices further across much of the world. In China, industrial users including makers of ceramics, glass, and cement may respond by raising prices; households in Brazil will face expensive power bills. Economies that can’t afford the fuel—such as Pakistan or Bangladesh—could simply grind to a halt. On the Odd Lots podcast we've been talking a lot about inflation lately (like everyone else, I suppose). First we walked through CPI measurement mechanics with [Omair Sharif](, and then we had a discussion on broader [macro themes]( with Julia Coronado and Laura Rosner-Warburton of MacroPolicy Perspectives. A common theme of both conversations is that there's no substitute for getting your hands dirty and actually looking at the moving parts that comprise our inflation measures. You can talk all you want about growth and the output gap and the Phillips Curve. But in the end if you want to say anything useful, you have to look at why natural gas prices are high in Europe, for example, and what that's doing to fertilizer or food costs, and so forth. The lack of an elegant solution to talking about inflation was underscored by a new Federal Reserve discussion paper by [Jeremy Rudd](, which among other things [argued]( strongly against the idea that so-called "inflation expectations" are a key determinant of inflation itself. In other words, you can't just hit your inflation goal of 2% just by convincing the public that inflation will be around 2%. And so once again to understand inflation, you have no choice but to understand the fertilizer market, semiconductor shortages, used cars, how many ships are docked at the Port of Los Angeles, what the latest virus variant means for airfares, what the Evergrande crisis will do to the price of iron ore and steel. And so on. Good luck! Follow Bloomberg's Joe Weisenthal on Twitter at [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Follow Us Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. You received this message because you are subscribed to Bloomberg's Five Things - Americas newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](