Economy

WASHINGTON (Reuters) -The United States expanded sanctions against Iran’s petroleum and petrochemical sectors on Friday in response to an Iranian missile attack on Israel, the administration of President Joe Biden said.The U.S. move adds petroleum and petrochemicals to an executive order that targets key sectors of Iran’s economy with the aim of denying the government funds to support its nuclear and missile programs.”The new designations today also include measures against the ‘Ghost Fleet’ that carries Iran’s illicit oil to buyers around the world,” Jake Sullivan, the national security adviser, said in a statement. “These measures will help further deny Iran financial resources used to support its missile programs and provide support for terrorist groups that threaten the United States, its allies, and partners.” Israel is vowing to respond to Iran’s Oct. 1 missile attack, launched in retaliation for Israeli strikes in Lebanon and Gaza and the killing of a Hamas leader in Iran.The U.S. Treasury can now “impose sanctions on any person determined to operate in the petroleum and petrochemical sectors of the Iranian economy,” it said in a statement.Biden has said Israel should seek alternatives to attacking Iran’s oil fields. Gulf states are lobbying Washington to stop Israel from attacking oil sites because they are concerned their own facilities could come under fire from Tehran’s proxies if the conflict escalates, three Gulf sources told Reuters.The Treasury Department also said it was designating 16 entities and identifying 17 vessels as blocked property, citing their involvement in shipments of petroleum and petrochemical products in support of the National Iranian Oil Company.Concurrently, the State Department took steps to disrupt the money flow into Iran’s weapons programs and support for “terrorist proxies and partners.”It imposed sanctions on six entities involved in Tehran’s petroleum trade and identified six ships as blocked property.Iran’s oil exports have risen under Biden’s tenure as Iran succeeds in evading sanctions and as China has become Iran’s major oil buyer.The Eurasia Group risk consultancy said on Friday the U.S. could cut Iran’s oil exports through tighter enforcement of previously imposed sanctions, for instance through satellite imaging for stricter monitoring of tankers that have turned off transponders. The U.S. could also pressure countries to support enforcement efforts such as Malaysia, Singapore and the United Arab Emirates, it said. But that approach “would require strong diplomatic pressure on two partners, Malaysia and UAE, which are both reluctant to support efforts favoring Israel,” it said. Tougher enforcement of sanctions would likely require targeting Chinese firms shipping Iranian crude, it said, as China buys nearly 90% of Iran’s crude-oil exports. More

WASHINGTON (Reuters) – Republican presidential candidate Donald Trump and members of his party running for the U.S. Senate are blaming immigrants for the rising cost of housing, though a review of economic data and independent research suggests their effect is limited.In making the argument, former President Trump and his allies are seizing on housing costs – a major economic concern of U.S. voters – as a reason to crack down on immigration, one of his core campaign issues.Unaffordable housing was registered voters’ second-biggest concern about the U.S. economy in an August Reuters/Ipsos poll. One in three voters cited housing costs, second only to the 56% who cited worries about income lagging inflation.Vice President Kamala Harris, Trump’s Democratic rival in the Nov. 5 election, has put housing at the center of her economic pitch to voters. She plans to spur new construction and reduce costs for renters and home buyers, largely through tax incentives.Over the past decade the U.S. has built new homes and apartments at about a 30% slower annual pace than before the 2008 financial crisis, leaving the market 1.5 million units shy of what would be needed to balance supply and demand, according to Freddie Mac estimates. Other forecasters, notably Moody’s (NYSE:MCO) Analytics, put the shortfall closer to 2.9 million units.That shortage plus COVID-fueled inflation have driven average rents up about 23% compared with 2020, estimates by Apartment List show. U.S. home prices have risen 50% in the last five years and rents have risen 35%, according to real estate firm Zillow (NASDAQ:ZG).Immigration “is driving housing costs through the roof,” Trump told a rally in the battleground state of Arizona in late September, standing in front of a backdrop that read: “Make housing affordable again.”Speaking in Tucson, Trump pointed to the number of immigrants who have entered the United States in recent years compared to the number of houses built, two statistics also used by Kari Lake, the Republican Senate candidate in that state, as proof of their argument.”It’s just basic common sense,” Lake said in an interview. “These people have to live somewhere, and this is basic supply and demand.”    In Wisconsin, Republican U.S. Senate candidate Eric Hovde told a local news outlet that closing the border would ease economic pain points.”We’re already having a hard time providing affordable housing and healthcare to our own citizens,” Hovde said. His campaign did not respond to a request for comment.LIMITED LINK, ACADEMICS SAYAcademics who study the intersection of immigration and housing say migrant inflows have a small effect on prices, with a 1% increase in a city’s population typically pushing rents and housing prices up by a corresponding 1%.Overall consumer prices have risen 21% since 2020, according to federal data. At the Massachusetts Institute of Technology’s Urban Economics Lab, Director Albert Saiz said his research indicates that rise has been the main driver of home prices and rents, followed by the rise in remote work leading to demand for larger homes with office space and more homes outside major coastal cities.The effect of immigration trails those factors, he said.”Quantitatively I don’t think it’s even close to explaining what’s happened,” Saiz said. “Clearly the other issues are more important.”Madeline Zavodny, a professor of economics at the University of North Florida, co-authored a recent paper released by the Federal Reserve Bank of Dallas that listed immigration as one force driving up rents. She said workers who entered the country illegally could contribute to that.But she also noted that because migrants, and specifically migrants who enter illegally, make up a large share of construction workers, they are likely “having a bigger impact on housing supply than on demand,” which works to bring down housing prices overall.  The Trump campaign did not immediately respond to a request for comment about economists’ findings.The idea that immigrants are fueling a nationwide housing shortage comes from a false impression of the economy that there are a fixed number of houses, Julia Gelatt, of the nonpartisan Migration Policy Institute, said. “Immigrants fill housing units, but because immigrants work at high rates in construction and remodeling, they also help to increase the housing supply.”That fact is likely understood in a border state like Arizona, where immigration has been a top issue for decades, said Barrett Marson, a Republican strategist based in the state.”Most voters are smart enough to know that … immigrants who are day laborers are not moving into the home in my price range,” he said. But in an election where cost of living is a major issue on voters’ minds, Marson said, “the fear-mongering doesn’t have to be true to be effective.” More

NEW YORK (Reuters) -Global stocks rose on Friday, lifted by U.S. bank earnings, and on track for a weekly gain while U.S. Treasury yields were mostly lower after inflation and consumer confidence reports solidified expectations for the path of Federal Reserve rate cuts.The U.S. producer price index for final demand was unchanged in September, slightly below the forecast of economists polled by Reuters for a gain of 0.1%. It followed an unrevised 0.2% increase in August, indicating inflation continues to cool and giving the Fed leeway to continue cutting interest rates.In the 12 months through September, the PPI increased 1.8% versus the 1.6% estimate.On Thursday, the consumer price index turned out to be slightly higher than expected as goods costs increased.The University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 68.9 this month, compared with a final reading of 70.1 in September and below the 70.8 estimate as high prices discouraged shopping.On Wall Street, U.S. stocks advanced, with the Dow and S&P 500 closing at record highs, as bank shares jumped 4.21%, its biggest daily percentage gain since May 2023, at the start of the quarterly earnings season. JP Morgan rose 4.44% and Wells Fargo shot up 5.61%.”As we get to the latter part of this year and into next year, you’re going to see earnings growth in the broader market and not just a small group of stocks and what the banks are telling us today is that’s happening,” said Craig Sterling, head of U.S. equity research at Amundi U.S. in Boston. “Banks have been as big a question mark as anybody – the level of rates, the yield curve, capital markets activity, et cetera – and two of our biggest banks today are saying well everything’s going to be pretty good.”S&P 500 earnings growth is expected to be 4.9%, LSEG data showed, down slightly from 5.2% at the start of October. The Dow Jones Industrial Average rose 409.74 points, or 0.97%, to 42,863.86, the S&P 500 rose 34.98 points, or 0.61%, to 5,815.03 and the Nasdaq Composite rose 60.89 points, or 0.33%, to 18,342.94. Gains were capped, however, by an 8.78% tumble in Tesla (NASDAQ:TSLA) shares as the electric vehicle maker promised much at its robotaxi event with few practical details.MSCI’s gauge of stocks across the globe rose 4.56 points, or 0.54%, to 852.75 and was on track for its fourth weekly gain in five weeks. In Europe, the STOXX 600 index closed up 0.55% as investors shifted their focus to China’s fiscal stimulus, corporate earnings seasons and the European Central Bank’s (ECB) expected rate cut next week.Bets that the Fed will cut rates by 25 basis points at its November meeting have been choppy in recent sessions, and stand at 88.4%, with markets pricing in a 11.6% chance of no change in rates, CME’s FedWatch Tool showed.Markets had been fully pricing in a cut of at least 25 basis points, with a chance for another outsized 50 bps cut last week, until a strong U.S. payrolls report prompted investors to dial back expectations.Comments from Fed Chair Jerome Powell and other central bank officials have signaled a shift in focus from combating high inflation to labor market stability.On Thursday, several policymakers said the data gives the Fed room to continue cutting rates, but Atlanta Federal Reserve Bank President Raphael Bostic told the Wall Street Journal he was open to skipping a rate cut.U.S. yields were choppy around the data as investors gauged the Fed’s rate path before heading lower. The benchmark U.S. 10-year note yield 0.5 basis point to 4.089% while the 2-year note yield, which typically moves in step with interest rate expectations, declined 5 basis points to 3.949%.The 10-year yield is up about 11 bps for the week, poised for its fourth straight weekly advance. The 2-year yield is nearly 7 bps on the week, on track for a second straight weekly climb.In currency markets, the dollar index, which measures the greenback against a basket of currencies, edged up 0.05% to 102.94, with the euro down 0.03% at $1.0932. The greenback is up 0.44% on the week, on track for a second straight weekly gain after four straight weeks of declines.Against the Japanese yen, the dollar strengthened 0.4% to 149.15. Sterling strengthened 0.05% to $1.3065 but remained near a one-month low after data showed Britain’s economy grew in August after two consecutive months of stagnation.Crude prices slipped, but secured a second straight weekly climb, as investors weighed the impact of hurricane damage on U.S. demand against any broad supply disruption if Israel attacks Iranian oil sites.U.S. crude settled down 0.38% to $75.56 a barrel and Brent fell to settle at $79.04 per barrel, down 0.45% on the day. More

NEW YORK/LONDON (Reuters) -The U.S. dollar was flat against major currencies on Friday as markets digested a slew of economic data that supported the Federal Reserve’s current monetary policy path.A gauge of U.S. producer prices was unchanged in September, the Labor Department reported, the latest economic data to indicate the Fed will likely cut rates again next month.Consumer prices in September rose 0.3%, according to data released on Thursday, slightly hotter than expected, while weekly jobless claims surged, pointing to labor-market weakness. The weekly jobless claims data was skewed by Hurricane Helene. Next week’s data will be affected by Hurricane Milton, the second hurricane in two weeks to hit the southeast U.S.The euro was flat at $1.1093, the pound was up 0.08% at $1.3072, while the dollar was up 0.35% against the Japanese yen at 149.12. The dollar index was flat at 102.91, taking a breather after a recent steady climb that took it above 103 on Thursday, its highest since mid-August on the back of traders reducing bets on further jumbo interest-rate cuts by the Federal Reserve at its remaining meetings this year. Markets are betting a nearly 91% chance of a 25-basis-point cut at the Fed’s next meeting and 9% probability of no cut, according to the CME’s Fedwatch tool.”That slightly higher inflation print has really backed the market away from being overly aggressive on how deep they were looking for the interest-rate cuts to go by the end of the year,” said Amarjit Sahota, executive director at Klarity FX in San Francisco. “So there was already an overprice in there and that’s basically unwound this week.”Britain’s economy grew in August after two consecutive months of stagnation, providing some relief to finance minister Rachel Reeves ahead of the new Labour government’s first budget later this month.However, in addition to being broadly steady on the dollar the pound was little changed on the euro at 83.67 pence to the common currency. Traders are also watching French politics, after the government on Thursday delivered its 2025 budget with plans for 60 billion euros ($65.5 billion) worth of spending cuts and tax hikes on the wealthy and big companies to tackle a soaring fiscal deficit. The budget is unlikely to pass until December, as French Prime Minister Michel Barnier and his allies in President Emmanuel Macron’s camp lack a majority by a sizeable margin and will have little choice but to accept numerous concessions. Markets are also awaiting a news conference from China’s finance ministry on fiscal policy on Saturday. The Chinese yuan strengthened 0.22% against the greenback to 7.067 per dollar. The Australian dollar strengthened 0.22% versus the greenback to $0.6753, while the New Zealand dollar was at $0.611 after the central bank on Wednesday slashed rates by a half point and hinted at further cuts to come.In cryptocurrencies, bitcoin gained 5.38% to $62,930.00. Ethereum rose 3.8% to $2,456.70.”The market is satisfied because there’s nothing there that really tells against the narrative that the Fed is cutting; the only debate is how fast they’re going to cut,” said Steven Englander, head of Global G10 FX Research at Standard Chartered (OTC:SCBFF) in New York.”Overall, the data have been slightly encouraging to that narrative and none of the data have been discouraging to the narrative that the Fed is cutting rates.”Currency bid prices at 11 October​ 07:51 p.m.               GMT Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid Dollar index 102.91 102.89 0.02% 1.52% 102.99 102.76 Euro/Dollar 1.0935 1.0938 -0.02% -0.93% $1.0953 $1.0927 Dollar/Yen 149.13 148.58 0.36% 5.72% 149.28 148.51 Euro/Yen 1.0935​ 162.48 0.37% 4.79% 163.4 162.32 Dollar/Swiss 0.8572 0.8563 0.11% 1.86% 0.8585 0.856 Sterling/Dollar 1.3068 1.3061 0.08% 2.72% $1.3082 $1.3042​ Dollar/Canadian 1.3759 1.3742 0.13% 3.8% 1.3785 1.3726 Aussie/Dollar 0.6753 0.6742 0.19% -0.93% $0.6759 $0.6726 Euro/Swiss 0.9374 0.9364 0.11% 0.95% 0.9387 0.9363 Euro/Sterling 0.8367 0.8373 -0.07% -3.47% 0.8383 0.8365 NZ Dollar/Dollar 0.611 0.6095 0.27% -3.29% $0.6119 0.6072 Dollar/Norway 10.6961​ 10.7222 -0.24% 5.54% 10.7637 10.6837 Euro/Norway 11.6971 11.7412 -0.38% 4.22% 11.772 11.694 Dollar/Sweden 10.3693 10.3744 -0.05% 3% 10.4157 10.355 Euro/Sweden 11.3402 11.3617 -0.19% 1.93% 11.3883 11.3336 More

This week’s inflation data provided more evidence that the Federal Reserve is nearing its 2% objective, a mark that Goldman Sachs thinks the central bank may have already hit.
From a policy standpoint, lower inflation opens the door for the Fed to keep cutting interest rates.

Federal Reserve Chairman Jerome Powell arrives to a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building on September 18, 2024 in Washington, DC. 
Anna Moneymaker | Getty Images

This week’s inflation data provided more evidence that the Federal Reserve is nearing its objective, fresh on the heels of the central bank’s dramatic interest rate cut just a few weeks ago.
Consumer and producer price indexes for September both came in around expectations, showing that inflation is drifting down to the central bank’s 2% target.

In fact, economists at Goldman Sachs think the Fed may already be there.
The Wall Street investment bank Friday projected that the Commerce Department’s personal consumption expenditures price index for September will show a 12-month inflation rate of 2.04% when it is released later this month.
If Goldman is correct, that number would get rounded down to 2% and be right in line with the Fed’s long-held objective, a little over two years after inflation spiked to a 40-year high and unleashed an aggressive round of interest rate hikes. The Fed prefers the PCE as its inflation gauge though it uses a variety of inputs to make decisions.
“The overall trend over 12, 18 months is clearly that inflation has come down a lot, and the job market has cooled to a level which is around where we think full employment is,” Chicago Fed President Austan Goolsbee said in a CNBC interview Thursday after the latest consumer price data was released. “We’d like to get both of them to stay in the space where they are right now.”

Some obstacles ahead

While keeping inflation at bay may not be an easy task, the latest data indicates that though prices are not receding from their troublesome heights of a few years ago, the rate at which they are increasing is pulling back.

The 12-month rate for the all-items consumer price index was at 2.4% in September, while the producer price index, a proxy for wholesale inflation and a leading gauge for pipeline pressures, showed an annual rate of 1.8%.
Goldman’s projection that the PCE index is heading to 2% is also about in line with tracking from the Cleveland Fed.
The central bank district’s “inflation nowcasting” dashboard pegs the 12-month headline PCE rate at 2.06% for September, which would get rounded up to 2.1%. However, on an annualized pace, inflation for the entire third quarter is running at just a 1.4% rate — well below the Fed’s 2% goal.
To be sure, there are some caveats to show that policymakers still have some work to do.
Core inflation, which excludes food and energy and is a metric that the Fed considers a better measure of longer-term trends, is expected to run at a 2.6% annual rate for the PCE in September, according to Goldman. Using just the consumer price index, core inflation was even worse in September, at 3.3%.
Fed officials, though, see the unexpectedly high shelter inflation numbers as a major driver of the core measure, which they figure will ease as a lower trend in rents works its way through the data.
Fed Chair Jerome Powell on Sept. 30, addressing the rent situation, said he expects housing inflation to continue to recede while “broader economic conditions also set the table for further disinflation.”
From a policy standpoint, lower inflation opens the door for the Fed to keep cutting rates, particularly as it turns its attention to the labor market, though there’s some trepidation about how quickly it should move.
September’s half percentage point reduction to a fed funds range of 4.75% to 5% was unprecedented for an economy in expansion, and the Fed at the very least is expected to return to its normal quarter-point pace. Atlanta Fed President Raphael Bostic even said Thursday he’d be open to skipping a move altogether at the November meeting.
“Aggressive easing would risk spiking consumer demand just as it is settling into a sustainable pace,” PNC senior economist Kurt Rankin said in a post-PPI analysis. “This result would in turn put pressure on businesses to meet that demand, re-igniting gains in those businesses’ own costs as they jockey for the necessary resources to do so.”
Futures traders are betting on a near certainty that the Fed cuts rates by a quarter point at both the November and December meetings. More

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France’s newly-installed government on Thursday presented a draft budget containing 60 billion euros ($65.6 billion) in tax hikes and spending cuts in a bid to cut its 6.1% deficit to 5% of gross domestic product by next year.
While tax hikes are focused on big corporations and high earners, the budget also contains politically-controversial measures including a levy on electricity consumption, vast public spending cuts and a delay to pension adjustments.
Analysts warned the package may not be enough to stave off further ratings downgrades for the economy and may hinder economic growth.

France’s newly-installed government on Thursday presented a draft budget containing 60 billion euros ($65.6 billion) in tax hikes and spending cuts, as analysts warned the package may not be enough to stave off ratings downgrades for the economy.
The 2025 budget features a greater focus on tax-raising measures than some were expecting. Analysts also flagged “politically complicated” proposals such as a delay to an inflation adjustment for pensions, and cuts to local government, the civil service and the healthcare system.

Other key elements include temporary additional taxes on large shipping firms and corporations with revenue of more than a billion euros a year, impacting around 440 companies; an income tax surcharge on households with incomes over 500,000 euros; the reintroduction of a levy on electricity consumption; and an increase in taxes and charges on airline tickets and cars with high emissions.
One of the budget’s core aims is to reduce France’s projected 6.1% deficit for 2024 to 5% of gross domestic product next year — an effort to comply with European Union rules which state a member nation’s budget deficit should not exceed 3% of GDP.
The government set a new target of meeting this rule by 2029, an extension of its previous goal of 2027. It also warned the deficit could swell to 7% next year without action.

Political challenge

The task of finding 60 billion euros in a year left the government with few options, meaning it had to turn to those which are “politically complicated,” Hadrien Camatte, senior economist for France, Belgium and the euro zone at Natixis, told CNBC’s “Squawk Box Europe” on Friday.
The fragile French government led by Prime Minister Michel Barnier has already faced one vote of no confidence this week, which it survived.

The government was formed last month after fraught negotiations in the wake of the July parliamentary election, which handed the most seats to the left-wing New Popular Front — itself a relatively divided alliance — but failed to deliver any party or coalition a majority.

In acknowledgement of this, Barnier characterized the draft budget as a starting point to be debated by lawmakers and said he was open to changes that maintain its fiscal integrity.
“There will be changes and there will be heated debate regarding pensions and social security contributions,” Camatte said, with debate over the budget set to kick off on Oct. 21 and votes on various portions of it from Oct. 29.
“The problem is when you have to find 60 billion, we have never found 60 billion in one year, it would be unprecedented, and that’s why it’s not very credible to find so huge an amount, especially with only a very fragile relative majority.”

Tax focus

The policy mix underpinning the 2025 budget is “less skewed towards spending cuts and more geared towards tax increases than we anticipated,” analysts at Goldman Sachs said in a note Friday.
“The magnitude of the proposed consolidation and the corresponding reliance on tax increases leave us less confident in the ability of the government to meet its 2025 deficit target of 5.0%. Our previous research has found that abrupt adjustments and tax-based consolidations tend to have a lower chance of succeeding in improving the fiscal position sustainably,” they wrote, noting their own deficit forecast was 5.2%.
However, they also flagged the potential for some near-term political stability given the government’s survival of the Oct. 8 no confidence vote.

French Minister for the Economy, Finance and Industry Antoine Armand arrives at the Elysee presidential palace to attend the weekly cabinet meeting, during which France’s 2025 budget was presented, on October 10, 2024 in Paris. 
Ludovic Marin | Afp | Getty Images

This means their base case is currently for the government to pass the budget bill by the end of the year, they said, but with greater uncertainty beyond that point.
“When you need fresh money very quickly, you don’t have any other option than increasing taxes. The problem is that tax is already very elevated in France,” Natixis’ Camatte told CNBC, noting the country has the second-highest wage taxation rate in Europe.
Despite an emphasis on tax hikes, the bill’s split should see government spending cut by 40 billion euros while revenues rise by 20 billion euros, according to Erik-Jan van Harn, senior macro strategist at Rabobank.
However, he added: “Barnier’s ambitious plans are fraught with implementation risks. His government commits until 2029 but isn’t very likely to survive until then.”

Ratings risk

Questions remain over what the 2025 budget will mean for France’s economic growth, and whether the country can avoid further credit downgrades on its sovereign debt, after cuts by agencies S&P and Fitch over the last two years.
The government has spread its measures to try to avoid harming economic growth, Evelyn Herrmann, Europe economist at Bank of America Global Research, told CNBC’s “Squawk Box Europe” on Friday.
“There is the hope is that by doing that and by going more into perhaps the upper income groups and the particularly profitable companies — and the promise to do that temporarily — perhaps you avoid a kind of typical strong effect on growth of these measures,” she continued.
However, the Goldman Sachs analysts estimate the impact of the package on economic growth will turn from a 0.3 percentage point boost in 2024 to a 0.5 percentage point drag in 2025 and 2026; while UBS said the historically large 2% of GDP fiscal consolidation would be “likely to hurt growth.”
Statistics agency Insee this week forecast 1.1% growth for the French economy this year, which Natixis’s Camatte described as “maybe a bit too optimistic, even if it’s not unrealistic.”
“My worry is for the trajectory beyond 2025, because measures to reduce the deficit beyond 2025 are undocumented and when you are doing debt sustainability analysis, the trajectory of France is clearly a risk,” he said.
In the near-term, ratings agencies would be in a wait-and-see mode given the lack of specific detail around the budget, he added, though a negative outlook from S&P or Fitch could not be ruled out.
“At this stage it’s more keep calm and let’s decide next year to see if the spending cuts are credible or not,” Camatte said. However, he expects agency Moody’s, which has maintained a better rating on France, to go into a negative outlook this year before downgrading next year.
Rabobank’s Van Harn was even more downbeat, arguing that sharp spending cuts would “put a lid on economic growth” and that “a rating downgrade by one of the major rating agencies seems likely.”
“Stark austerity has its price. Economic growth, which is already weak, will be hampered by a sharp turn in France’s fiscal stance. The government would do well to consider the economic side effects of their policy, but the lack of political capital risks that Barnier will be forced to make the wrong decisions,” he said Friday.
“Given the risks already highlighted by [Fitch] and the comparatively optimistic nature of its earlier projections, we see a rating downgrade as likely. While clearly not a positive from a spread perspective we believe that the market is already largely pricing for such a move.”
— CNBC’s Charlotte Reed contributed to this story More