Aurelia Butler

NEW YORK (Reuters) -Uncertainty over the U.S. economy’s health is rippling through markets, adding fuel to an already-volatile period that has investors grappling with a shift in Federal Reserve policy, a tight U.S. election and worries over stretched valuations.U.S. stocks tumbled on Friday after closely watched jobs data showed labor market momentum slowing more than expected, suggesting a narrower path for the U.S. to achieve a soft landing, in which the Fed is able to cool inflation without badly damaging economic growth.The Fed is expected to cut interest rates at its Sept. 17-18 meeting, but the data revived fears that months of elevated borrowing costs have already started to pressure the economy. That is a potentially unwelcome development for investors, after prospects for rate cuts against a background of resilient growth helped drive the S&P 500 to record highs this year.”The data shows that we remain on the soft-landing path, but clearly there’s more downside risks to which the markets are going to be sensitive,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “The expectation for elevated volatility is a realistic one.”Evidence of ebbing risk appetite showed up across markets. The S&P 500 dropped 1.7% on Friday and has lost nearly 4.3% in the past week, its worst weekly decline since March 2023. Nvidia (NASDAQ:NVDA), the poster child of this year’s artificial intelligence excitement, was down over 4% and stood near its lowest level in about a month, falling along with other high-flying technology names. Meanwhile, the Cboe Market Volatility index, also called Wall Street’s “fear gauge,” hit its highest level in nearly a month on Friday.”There’s concern that the Fed is not going to be reacting quick enough or more forcefully enough to help prevent something more sinister,” said Keith Lerner, co-chief investment officer, Truist Advisory Services.Several factors threaten to compound the market’s uncertainty. Futures bets on Friday showed investors pricing in a nearly 70% chance of a 25 basis point reduction by the Fed, and 30% chance of a 50 bp cut. For many, however, the issue remains far from settled.”Markets have had to grapple with – just as the Fed is doing – whether the August payroll data reflects a labor market normalizing towards pre-COVID levels or whether it’s indicative of an economy losing dangerous momentum,” Quincy Krosby, chief global strategist for LPL Financial (NASDAQ:LPLA), said in written commentary. Others took a dimmer view. Citi analysts said the report warranted a 50 basis point cut later this month.”The takeaway from the range of labor market data is clear – the job market is cooling in a classic pattern that precedes recession,” analysts at Citi wrote.Inflation data next week could shed further light on the strength of the economy and help solidify bets on how much the Fed might cut rates.Valuation concerns are also reemerging. The S&P 500, which is up over 13% this year, is trading at a price-to-earnings ratio of nearly 21 times expected forward 12-month earnings estimates as of Thursday, well above its historical average of 15.7, according to LSEG Datastream.Despite a recent swoon, the S&P 500 technology sector – by far the biggest group in the index – is trading at over 28 times expected earnings, compared to its long-term average of 21.2.”We’ve come a long way in a relatively short period of time and I think you’re starting to see some businesses do the math on AI and ask whether it’s really worth the cost, which will weigh on the big tech stocks,” said Mark Travis, a portfolio manager at Intrepid Capital Management.Investors are also closely watching a tight U.S. presidential election which is starting to head into the home stretch. The race between Democrat Kamala Harris and Republican Donald Trump could draw more investor focus on Tuesday, when the two candidates debate for the first time ahead of the Nov. 5 vote.So far, the market gyrations have bolstered September’s reputation as a tough time for investors. The S&P 500 has fallen an average of nearly 0.8% in September since 1945, making it the worst month for stocks, CFRA data showed. The index is already down 4% since the month began.”Investors are saying let’s hope we can have a soft landing,” said Burns McKinney, senior portfolio manager at NFJ Investment Group. “It still feels like it’s fairly likely, but with each weaker jobs number it’s becoming less and less the base case.” More

WASHINGTON (Reuters) – U.S. job openings dropped to a 3-1/2-year low in July, suggesting the labor market was losing steam, but the reduction on its own is probably not enough to warrant a half-percentage-point interest rate cut by the Federal Reserve this month.The larger-than-expected decline in unfilled jobs shown in the Job Openings and Labor Turnover Survey, or JOLTS report, from the Labor Department on Wednesday meant there were 1.07 open positions for every unemployed person in July. That was the least since May 2021 and down from 1.16 in June. The vacancies-to-unemployed ratio peaked just above 2.0 in 2022.Still, the labor market is likely not deteriorating. A separate report from the Fed described employment levels as “generally flat to up slightly in recent weeks.” The labor market is being closely watched by investors and policymakers following four straight monthly increases in the unemployment rate, which stoked fears of a recession. Economists are sticking to their forecasts for a 25-basis-point rate cut at the U.S. central bank’s Sept. 17-18 meeting. Much depends on the employment report for August, which is due to be published on Friday.”Does this report suggest the need for a 50-basis-point rate cut in September?” asked Conrad DeQuadros, senior economic advisor at Brean Capital. “We would say no because … the vacancies-to-unemployed ratio is still high by historical standards.” Job openings, a measure of labor demand, had fallen by 237,000 to 7.673 million on the last day of July, the lowest level since January 2021, the Labor Department’s Bureau of Labor Statistics said. Data for June was revised lower to show 7.910 million unfilled positions instead of the previously reported 8.184 million. Economists polled by Reuters had forecast 8.100 million job openings. Vacancies peaked at 12.182 million in March 2022 and are down by 1.1 million over the year. The decline in open jobs was concentrated among small businesses.Unfilled jobs declined by 187,000 in healthcare and social assistance and decreased by 101,000 in state and local government, excluding education. These two are among a handful of sectors that have driven job growth this year.The transportation, warehousing and utilities sector had 88,000 fewer open positions. But job openings increased by 178,000 in the professional and business services category and there were 28,000 vacancies in the federal government. The job openings rate fell to 4.6%, the lowest level since December 2020, from 4.8% in June. Hires increased by 273,000 to 5.521 million. They rose by 156,000 in accommodation and food services, but decreased by 8,000 in the federal government. The hires rate rose to 3.5% from 3.3% in June. Layoffs rose 202,000 to 1.762 million, the highest level since March 2023. Layoffs, however, remain low by historic standards. The rise in July was led by an increase of 75,000 in accommodation and food services as well as an advance of 21,000 in finance and insurance. The layoffs rate rose to a still-low 1.1% from 1.0% in June. Low layoffs were underscored on Wednesday in the Fed’s “Beige Book” report, which reported that five of the U.S. central bank’s districts saw slight or modest increases in overall headcounts in late August. It, however, noted that “a few districts reported that firms reduced shifts and hours, left advertised positions unfilled, or reduced headcounts through attrition, though accounts of layoffs remained rare.” Financial markets saw less than a 50% chance of a half-percentage-point rate reduction this month, according to CME Group’s (NASDAQ:CME) FedWatch Tool. A 50-basis-point rate reduction was also put in doubt by strong consumer spending in July.Stocks on Wall Street were trading lower and the dollar slipped against a basket of currencies. Prices of U.S. Treasuries rose.TRADE DEFICIT WIDENS”The labor market is still in pretty good shape, but it has cooled dramatically over the last year and a half,” said Bill Adams, chief economist at Comerica (NYSE:CMA) Bank. “Most Americans who want jobs have them, but there are fewer opportunities or alternatives for workers who are laid off or simply prefer something different.”Solid domestic demand was reinforced by other data from the Commerce Department’s Bureau of Economic Analysis on Wednesday which showed a surge in imports pushed up the trade deficit 7.9% to $78.8 billion in July, the widest since June 2022.Imports rose 2.1% to $345.4 billion. Goods imports jumped 2.3% to $278.2 billion, the highest since June 2022. Capital goods imports increased $3.3 billion to a record high, mostly reflecting computer accessories. While the increase in imports would subtract from gross domestic product, it highlighted the economy’s resilience. Businesses are also likely front-loading imports in anticipation of higher tariffs on goods.President Joe Biden’s administration has announced plans to impose steeper tariffs on imports of Chinese electric vehicles, batteries, solar products and other goods. The government said last week a final determination will be made public in the “coming days.” There are also fears of even higher tariffs on Chinese imports should former President Donald Trump return to the White House after the Nov. 5 election.The politically sensitive goods trade deficit with China increased $4.9 billion to $27.2 billion. Exports gained 0.5% to $266.6 billion. Goods exports climbed 0.4% to $175.1 billion. The goods trade deficit increased 6.9% to $97.6 billion after adjusting for inflation. Trade has subtracted from GDP for two straight quarters. Most of the imports are, however, likely to end up as inventory amid slowing domestic demand, which could blunt some of the impact on GDP. Goldman Sachs lowered its third-quarter GDP growth estimate to a 2.5% annualized rate from a 2.7% pace. The economy grew at a 3.0% pace in the second quarter. “Net trade will weigh on third-quarter GDP growth, but that is hardly cause for concern when it reflects the continued strength of imports, painting a better picture of domestic demand than renewed recession fears would suggest,” said Thomas Ryan, North America economist at Capital Economics. More

Three of the sources expect a final agreement to be reached in October. The amount is more than the 82 billion reais in new resources offered in the companies’ last proposal in June to compensate for the 2015 disaster, which caused a wave of toxic tailings that killed 19 people, left hundreds homeless, flooded forests and polluted a river.($1 = 5.5955 reais) More

The reserves grew by 13.7% over the past month, the bank said in a statement. The reserves stood at $37.2 billion as of Aug. 1. “Such dynamics were driven by large inflows from international partners, which exceeded (the bank’s) net FX sales and Ukraine’s FX debt repayments,” the bank said in a statement. In August, Ukraine received 4.2 billion euros from the European Union’s lending facility and $3.9 billion via the World Bank. Ukraine is heavily reliant on financial aid from its Western partners to cover social spending as it allocates its own revenues for military needs. More

Nonfarm payrolls increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls increasing by 160,000 jobs after a previously reported 114,000 gain in July. Estimates ranged from 100,000 to 245,000 jobs.Markets expectations for an upsized 50 basis point cut at the Federal Reserve’s mid-September meeting increased after the data. MARKET REACTION:STOCKS: S&P 500 E-minis erased early losses were up 5.25 points, or 0.1%.BONDS: he yield on benchmark U.S. 10-year notes edged down 0.4 basis point to 3.729%, the two-year note yield declined 4.4 basis points to 3.7082%.FOREX: The dollar index slipped 0.02% at 101.02.COMMENTS: GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK“I think the market’s really struggling with this one because it’s really in the middle of what could be used as a justification for either a 25 or 50 basis point rate cut.””It is consistent with a cut in September. The big question right now is just what’s the size? I think that’s what the markets are struggling with right now. Is this number weak enough for a 50 basis point rate cut in September? If you ascribe a more activist role to the Fed, then yes. If you think they are looking to be a little bit more measured, then no. But either way, I think the markets are going to be really balanced on a knife’s edge until the Fed shows support for either a 25 or a 50 one way or the other, and it’s really a tough decision.“If you look at the payroll report net of revisions, it’s not great, especially net of the 86K revisions we saw for the last two months. So I do think that the unemployment rate is the key, but it’s not indicative of a very strong labor market. We do see the labor market really not just coming into balance, but really starting to cool off quite significantly, which could make the Fed quite nervous.”LOU BASENESE, PRESIDENT AND CHIEF MARKET STRATEGIST, MDB CAPITAL, NEW YORK“Everything is going down. You saw the lower-than-expected adds, you saw the last two months revised down, which means rates have to go down. Powell has got no choice. What is to be determined is if he timed it perfectly with rate cuts or if he was too late. I think so far, he’s OK. You don’t see massive layoffs yet. But if we start seeing layoffs in the next month or two, it’s going to suggest his timing was too late. “Stocks are going to go down until next week when the Fed makes it definitive that they’re cutting, which could put pressure on them to do 50 basis points versus 25. I think 25 is all but guaranteed. But downwards stocks pressure heading into the meeting could change it to a 50-basis point cut.”DREW MATUS, CHIEF MARKET STRATEGIST, METLIFE INVESTMENT MANAGEMENT, NEW JERSEY“The payroll report suggests there is no reason for the Federal Reserve to rush. Payroll growth was OK, unemployment was effectively unchanged and hours worked increased, boosting weekly take home pay for workers. The labor market is slowing, but at a slow pace, allowing the Fed to move more deliberately in September. We continue to expect 75 basis points of easing this year as the Fed calibrates policy to manage the ongoing economic slowdown.”BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN”I love all animals, so I mean this with all respect, but there was a dead cat bounce in August from the July softness. There were large back-month revisions. There was a large increase in part-time employment. There was a decrease in temporary help services again. The diffusion index for manufacturing fell. The headline number of 142,000 would ordinarily be considered healthy, but this labor market is held together by duct tape and string. “Could the Fed cut by 50 bps? Yes, but will they? No. They probably want to start with 25 and retain the option to increase that to 50 rather than just jump right into a 50.”ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT“Market is trying to digest the news just as much as anybody else. The initial pop in futures was based on the unemployment rate being pretty much right in line with expectations and down from the prior report, but when they get into the numbers, like the non-farm payroll itself, it shows that decline in the number of jobs being created versus expectations. And then the prior revisions lower, which is really sort of speaking to the economy slowing down.”I don’t think it’s an indication that the economy is collapsing by any means, but it is an indication that it’s slowing. This means a 25-basis-point rate cut. I don’t think it speaks to needing anything more than that right yet.”Those that might have been kind of hoping for a 50bps rate cut maybe disappointed, but they have to know that they better be careful what they wish for.”KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO    “The U.S. economy looks more likely to gouge the runway in the months ahead, justifying an increasingly aggressive response from officials at the Federal Reserve.    “A half-point rate cut at the central bank’s September meeting remains unlikely, but today’s release provided clear evidence of a sharp deterioration in labor market fundamentals, and will bolster bets on at least one jumbo-sized rate cut in the coming months.    “The dollar is retreating, yields are coming down across the front end of the curve, and rate-sensitive asset classes are adding to recent gains.”MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON “The August US labour market report painted something of a mixed picture of the employment situation… all of this does little to clear-up the debate over the September Fed meeting.””Doves will point to a cooling pace of headline payrolls growth as potential reasoning for a larger 50bp cut. Hawks, meanwhile, will reasonably point towards the lack of further cooling compared to the July report, and hot-ish earnings growth, as reasons to kick-off the normalization cycle with a more modest 25bp move. My base case remains for the latter, particularly given the risk the Fed run of sparking a market panic were a larger cut to be delivered.” MATT ROWE, HEAD OF PORTFOLIO MANAGEMENT, CROSS ASSET STRATEGIES AT NOMURA CAPITAL MANAGEMENT, NEW YORK, NY    “The numbers came in at an ideal spot for what the market was hoping for. The unemployment rate remained relatively low coming in at 4.2%. It’s not showing some kind of catastrophe break down in the labor market. Also the hourly rate was not cut back. One thing that people were focused on was to see if from an employer standpoint if hours were being cut back and that doesn’t appear to be the case.”    “Today’s numbers don’t look like a recession is imminent. It just looks like things are slowing down a bit, not like something cataclysmic is imminent.    “The market’s going to love this. Today, I think we’ll see the market rally on the open. What the market’s going to get out of this is clear cover for the Fed to be cutting rates and a path to cutting rates more than once … I would be surprised if we don’t finish the day in the green.” More