Economy

(Reuters) -Chipmaker Broadcom (NASDAQ:AVGO) forecast annual revenue below Wall Street estimates on Thursday, as weak enterprise spending and stiff competition cast a shadow on its acquisition of VMware (NYSE:VMW).Shares of San Jose, California-based Broadcom, which recently closed its acquisition of the cloud computing firm, fell more than 1% in extended trading.In fiscal 2024, Broadcom expects revenue of about $50.0 billion including VMware’s contribution. Analysts on average were expecting $52.50 billion, according to LSEG data.”The outlook in part depends on how effectively Broadcom can weave the restructuring into its long-term AI strategy,” said Jacob Bourne, an analyst at Insider Intelligence.VMware’s non-core end-user computing and Carbon Black businesses will be divested, CEO Hock Tan said on a post-earnings call, confirming earlier media reports.The company also forecast annual adjusted EBITDA of about 60% of projected revenue, which comes out to be around $30 billion, an expected increase of nearly $7 billion from its 2023 EBITDA.Broadcom’s original goal was to improve VMware’s EBITDA contribution to $8.5 billion within three years of closing.The company also expects to incur about $1 billion in transition costs related to VMware, CFO Kristen Spears said on the call.The company has seen revenue from telecom and enterprise clients moderate, and with major client Cisco Systems (NASDAQ:CSCO) flagging a slowdown in new orders, analysts worry Broadcom will see the impact as well.”We continue to see a very mixed demand environment for Broadcom’s service provider and enterprise businesses,” said Summit Insights analyst Kinngai Chan.Competition from Nvidia (NASDAQ:NVDA), whose InfiniBand is being used as an alternative to Broadcom’s core offerings for AI, is an added pain.Broadcom’s revenue in the fourth quarter was $9.30 billion, below estimates of $9.41 billion.However, on an adjusted basis, the company’s profit of $11.06 per share beat estimates of $10.98. More

Economists expect the Labor Department to report Friday morning that nonfarm payrolls expanded by 190,000 last month, up from 150,000 in October.
A hot jobs report could undermine that confidence, and put a damper on what has been a buoyant mood on Wall Street.
Probably the most important data point outside the headline numbers will be wages.

Amazon workers deliver packages on Cyber Monday in New York, US, on Monday, Nov. 27, 2023. 
Stephanie Keith | Bloomberg | Getty Images

At a time when the economy is supposed to be slowing, Friday’s jobs report is expected to show that employers actually picked up the hiring pace in November.
Not that there’s anything wrong with that. A growing economy is a good thing, and nothing underpins that better than a solid labor market. Economists surveyed by Dow Jones expect the Labor Department to report that nonfarm payrolls expanded by 190,000 last month, up from the 150,000 in October.

But investors and policymakers have been expecting things to slow down enough to at least allow the Federal Reserve to call an end to this cycle of interest rate hikes as inflation ebbs and the supply-demand mismatch in employment evens out.
A hot jobs report could undermine that confidence, and put a damper on what has been a buoyant mood on Wall Street.
“There’s some risk to the upside because of the returning auto workers who were on strike,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “So it looks like a steady but slowing jobs market.”
Payroll growth has averaged 204,000 over the past three months, a solid gain though well below the 342,000 level for the same period in 2022. The unemployment rate over the past 12 months, however, has risen just 0.2 percentage point to 3.9%, elevated from where it was earlier in the year but still characteristic of a robust economy.
However, there are a number of dynamics at play in the current picture that make this week’s report, which will be released at 8:30 a.m. ET, potentially critical.

Wage growth and inflation

Probably the most important data point outside the headline numbers will be wages.
Average hourly earnings are expected to show acceleration of 0.3% from October and 4% over the 12-month period, according to Dow Jones.
The yearly average hourly earnings level is not consistent with the Fed’s 2% inflation goal, but it is off its March 2022 peak of 5.9%. Getting wage growth to a sustainable level is vital to bringing inflation down, so anything more pronounced could generate a market reaction.
“When you come down to trying to measure supply and demand, price is probably the most accurate way to look at it, and you know that wage growth has slowed considerably,” Jones said. “So it tells you supply and demand are coming back on track.”

Jobless rate as a recession indicator

Outside of wages, the headline unemployment rate could get some extra scrutiny.
Though the jobless figure has risen just incrementally from a year ago, it’s up half a percentage point from its recent low of 3.4% in April.
The difference is significant in that a time-tested indicator known as the Sahm Rule shows that when the unemployment rate rises half a point from its most recent low on a three-month average, the economy is in recession.

However, even the rule’s author, economist Claudia Sahm, said there are no guarantees that will be the case this time around, though warning signs are definitely in place.
“There is a logic to it that … once the unemployment rate starts rising, it often keeps going, and it picks up steam and it’s a feedback loop,” Sahm said recently on CNBC. “That’s why a small increase in the unemployment rate can be really bad news, because it keeps going.”

Signs of strength, and weakness

Other data this week showed some wobbles in the labor market.
Job openings hit their lowest level in 2 1/2 years, and ADP reported that private payrolls grew just incrementally. Though continuing jobless claims edged lower, they are running high.
However, workers returning from strikes in the auto industry and Hollywood could bolster the November total by as much as 38,000, according to Goldman Sachs. The firm’s economists, in fact, expect that the report will be considerably above the Wall Street estimate – for a total of 238,000 that could jangle some nerves for its potential to harden the Fed’s position.
Neil Costa, founder and CEO of recruitment marketing firm HireClix, said he’s witnessed a slowdown in job ads.
“We’ve definitely seen a cooldown happening this year,” he said. “It started in the early part of the year, and we’ve seen people pull back on their recruitment advertising dollars, without a doubt.”
However, he said pockets of the jobs market remain strong, citing health care specifically, while he has seen a slowing in transportation, logistics and manufacturing. Costa is looking for continued slowing in 2024, though nothing consistent with a deep recession.
“People are just being extremely cautious at this particular point,” he said. More

WASHINGTON (Reuters) -The Biden administration is considering getting behind new restrictions on who can seek asylum and an expanded deportation process to secure new aid for Ukraine and Israel in a supplemental funding bill, a source familiar with discussions said. The White House and U.S. Congress are racing to strike a deal that would deliver military aid to the two allied nations while discouraging illegal immigration across the U.S.-Mexico border with only a week until lawmakers depart for a Christmas break.Republicans have refused to approve more Ukraine funding without additional measures to reduce the record number of migrants attempting to cross the U.S. border illegally, leading to a complex negotiation pairing the largely unrelated issues. President Joe Biden, a Democrat seeking reelection in 2024, said on Wednesday that he would be willing to make significant concessions on border security as Senate Republicans rejected a Democratic aid package with $20 billion in border funding. The White House would be open to heightening the standard for initial asylum screenings, a source familiar with the matter told Reuters, requesting anonymity to discuss the talks.The Biden administration also would entertain some form of a “safe third country” provision that would deny asylum to migrants who pass through another country en route to the U.S., the source said. Another possible point of agreement could be expanding a fast-track deportation process known as “expedited removal.” The authority would be employed nationwide instead of its current application at the border, the source said.A bipartisan group of senators trying to reach a deal are also discussing a numerical limitation on asylum claims, the source said. The Biden administration position on such a cap remains unclear.White House spokesperson Angelo Fernandez Hernandez said Biden has made it clear “the border is broken” and that Congress should take action to fix it.”The president has said he is open to compromise,” he said in a statement.The Republican-led House of Representatives is scheduled to wrap up work for the year by Dec. 14, leaving a tight window to pass legislation. The Democratic-led Senate faces a similar timeline.With that in mind, the goal seems more to strike a top-line deal and perhaps work on the exact details of the legislative text over the break, sources said. Democratic Senator Chris Coons said Thursday the gap between his party and Republicans remains “stubbornly large” but that he remains optimistic they can find common ground.White House spokesperson Karine Jean-Pierre criticized Republicans during a press briefing on Thursday.”They are playing chicken with our national security,” she said. “History will remember them harshly.”Republican Senator Thom Tillis, part of the bipartisan group trying to hash out a border security compromise, told reporters on Wednesday that any proposal would have to cut illegal immigration at least by half and that he did not know if a deal could be reached before Christmas.”We’ve got a lot more work to do,” he said. More

WASHINGTON (Reuters) – U.S. lawmakers unveiled an annual defense policy bill leaving out most of the divisive social issues, such as abortion rights and treatment of transgender service members, that had threatened to derail the must-pass legislation.The Senate and House of Representatives Armed Services Committees released the 3,000-page text of the Fiscal 2024 National Defense Authorization Act, or NDAA, late on Wednesday. This year’s bill, an annual measure that sets policy for the Department of Defense, authorizes a record $886 billion in spending, a 3% increase over last year.The measure is a compromise between versions of the NDAA passed by the Republican-controlled House and Democratic-controlled Senate earlier this year.It authorizes a 5.2% pay increase for service members, measures to address competition with China including new training assistance for Taiwan, a four-month extension of a key domestic surveillance authority and purchases of equipment including ships, helicopters, submarines, rockets, bombs and other weapons.It also contains provisions that could pave the way for Australia to receive several U.S. nuclear-powered submarines as part of the AUKUS agreement between the United States, United Kingdom and Australia.The bill does not include many provisions – which critics describe as “culture war” matters – included in the version of the legislation passed by the Republican-controlled House, and opposed by most Democrats, who control the Senate.The compromise NDAA does not overturn the Pentagon’s policy of reimbursing servicemembers who travel to obtain abortions, which prompted Republican Senator Tommy Tuberville to block most military promotions for most of the year.It also drops House language that would have blocked coverage of transition surgeries for transgender troops.Congress has passed an NDAA annually since 1961, one of the few major pieces of legislation to become law every year. The Senate could take its first votes within days, with the House of Representatives expected to follow suit later this month.The bill – the result of negotiations between Democrats and Republicans in the Senate and House – is expected to pass both chambers and be signed into law by President Joe Biden, despite expected opposition from the hard-right wing of the House. More

In her Mexico City visit, Treasury Secretary Janet L. Yellen sought to deepen economic ties while countering drug trafficking.The United States and Mexico sought to project a united front on Thursday in their efforts to deepen economic ties and crack down on illicit drug smuggling as the Biden administration looks to solidify its North American supply chain and reduce reliance on China.At the conclusion of three days of meetings in Mexico City, Treasury Secretary Janet L. Yellen announced that the U.S. and Mexico would begin working more closely to screen foreign investments coming into both countries with a new working group to weed out potential national security threats.The collaboration comes as the administration looks to ensure that allies such as Mexico are able to partake of the billions of dollars of domestic energy and climate investments that the United States is deploying. However, as the administration seeks closer cross-border economic integration, it wants to ensure that Mexico is not the recipient of potentially problematic investments from countries such as China.“Increased engagement with Mexico will help maintain an open investment climate while monitoring and addressing security risks, making both our countries safer,” Ms. Yellen said at a news conference on Thursday.In Mexico, Ms. Yellen has had to strike a delicate balance, pushing her counterparts there to work harder to confront fentanyl trafficking into the U.S. while trying to deepen economic ties at a time when China is also investing heavily to build factories there.Ms. Yellen has embraced Mexico, America’s largest trading partner, as a friendly ally during her trip — visiting drug-sniffing dogs and holding talks with top Mexican leaders. But there is growing frustration within the Biden administration over what officials perceive as President Andrés Manuel López Obrador’s unwillingness to invest in efforts to combat fentanyl trafficking in the region. An increasing number of U.S. officials have become more outspoken in recent months over the need to pressure Mexico to do more to crack down on fentanyl.“The illicit trafficking of fentanyl devastates families and communities and poses a threat to our national security while also undermining public safety in Mexico,” Ms. Yellen said.Nearly 110,000 people died last year of drug overdoses in the United States, a crisis that U.S. officials say is largely driven by the chemical ingredients for fentanyl getting shipped from China to Mexico and turned into the potent synthetic drug that is then trafficked over the southern border into the United States.Mr. López Obrador has generally rejected the notion that fentanyl is produced in his nation and described the U.S. drug crisis as a “problem of social decay.” He has argued that American politicians should not use his country as a scapegoat for the record number of overdoses in the United States. The growing number of fentanyl-related deaths have fueled calls by Republican presidential candidates to take military action against Mexico.In February, Anne Milgram, the Drug Enforcement Administration administrator, said her agency was still not receiving sufficient information from Mexican authorities about fentanyl seizures or the entry of precursor chemicals in that country, and that the United States was increasingly concerned over the number of laboratories used to produce fentanyl in Mexico.Both Republicans and Democrats are specifically concerned over a port in Manzanillo, Mexico, which they say is a prime hub for fentanyl precursors.Fernando Llano/Associated PressAnd in October, on the eve of Secretary Antony J. Blinken’s visit with President López Obrador in Mexico, Todd Robinson, the State Department’s assistant secretary of the bureau of international narcotics and law enforcement affairs, told The New York Times that the Mexican president was not acknowledging the severity of the drug crisis in the region.The Mexican president would rather be in the category of “someone who has a problem but doesn’t know it,” he said.Mr. Robinson, as well as officials in the Treasury Department, also believe Mexico must do more to bulk up its ports to intercept fentanyl precursors coming from China. Both Republicans and Democrats are specifically concerned over a port in Manzanillo, Mexico, that they say is a prime hub for fentanyl precursors.The United States in the meantime has increasingly relied on the tools of the Treasury Department to target drug organizations in Mexico that are trafficking the dangerous drug to the United States.Brian Nelson, the under secretary for terrorism and financial intelligence at the Treasury Department, said in an interview in October that the department would continue to use sanctions to pressure cartel organizations and suppliers of fentanyl chemicals.“We will continue to use our tools to map and trace the network’s suppliers of the precursor drugs that are flowing into Mexico from foreign countries, including China; the money laundering organizations that support the financial flows that enable this criminal enterprise,” Mr. Nelson said.The Treasury Department accelerated those efforts this week with the creation of a new “counter-fentanyl strike force” that will aim to more aggressively scrutinize the finances of suspected narcotics dealers. On Wednesday, Ms. Yellen announced that the Treasury Department was imposing new sanctions against 15 Mexican individuals and two companies that are linked to the Beltrán Leyva Organization, a major distributor of fentanyl into the U.S.At the same time that the Biden administration is trying to curb the flow of drugs coming from Mexico, Ms. Yellen emphasized a desire for more trade between the two countries and noted that the U.S. benefits from imports of Mexican steel, iron, glass and car parts.The 2022 Inflation Reduction Act law in the U.S. allows American consumers to benefit from tax credits for electric vehicles that are assembled in Mexico, and Ms. Yellen said that she wants to see the automobile sector supply chain more tightly integrated between the two countries.“The United States continues to pursue what I’ve called friend-shoring: seeking to strengthen our economic resilience through diversifying our supply chains across a wide range of trusted allies and partners,” Ms. Yellen said.At the news conference, Ms. Yellen pushed back against the idea that the U.S. was encouraging Mexico to adopt more rigorous foreign investment safeguards because it wanted to deter Chinese investment there.“As long as there are appropriate national security screens and those investments don’t create national security concerns for Mexico or the United States, we have absolutely no problem with China investing in Mexico to produce goods and services that will be imported into the United States,” Ms. Yellen said. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China has dismissed growing concern in Brussels over the country’s record €400bn trade surplus with the EU in 2022, saying the gap will be significantly narrower this year.The comments came as European Council president Charles Michel and European Commission president Ursula von der Leyen met President Xi Jinping and his number two Li Qiang in Beijing on Thursday for the first in-person EU-China summit since the pandemic.In what Beijing called “candid” talks, the two sides discussed issues including trade differences, climate change co-operation, and the wars in Ukraine and Gaza, but did not achieve any major breakthroughs.Von der Leyen told reporters after the summit the root causes of China’s trade surplus with the EU were “well-known” — a lack of market access for European companies and Beijing’s preferential treatment of domestic companies as well as overcapacity in Chinese production. “If you look at the last two years, the trade deficit has doubled,” she said, adding that this was unsustainable.But China’s foreign ministry director-general for European affairs Wang Lutong said in a separate briefing after the summit that the Asian country’s surplus with the EU was already falling. China’s customs administration has reported a deficit of Rmb1.4tn (€183bn) for the first 11 months of this year, down 17 per cent compared with a year earlier. “Both sides discussed about what Brussels has been calling imbalance about bilateral trade — we don’t think China could be held accountable for this,” Wang told reporters after the talks. He said China did not believe there was overcapacity in its electric vehicles sector, which is facing an anti-subsidy investigation in the EU, especially given the enormous need for such products. “I think a lot of industries in China developed . . . because of innovation,” Wang said, adding that the EU itself was spending billions on subsidies for battery industries.The EU needed to decide if it wanted to benefit from China’s industrial prowess in renewable industries as Europe made the transition to a green economy, he added.“If you want us to support the EU in the green transition, do not be protectionist — you make the choice,” he said. Thursday’s summit followed growing tensions not only over trade, but also over China’s refusal to condemn Russia’s invasion of Ukraine. While Beijing has called for a ceasefire, Brussels wants it to pressure Moscow to withdraw its troops completely from Ukraine.“Sometimes European politicians say to us that China needs to speak to Russia, we need to speak to President Putin about [withdrawing] their soldiers,” Wang said. “But this is a very independent sovereign nation. President Putin is making his decision based on his own national interest and security.”He said Europe itself should hold talks with Russia about negotiating with Ukraine, while Washington and Moscow should discuss a strategic security framework. China was also upset about new sanctions being launched in the west against its companies over supplying goods to Russia, Wang said. Europeans should not ask China to help them on “the one hand and on the other harm our national interest”, he added. If China’s companies were subject to unilateral sanctions, “definitely we will respond accordingly”, Wang said. Despite the lack of tangible results, some analysts said the smooth holding of the summit marked progress for China-EU relations given recent tensions.“Strengthening dialogue and co-operation is conducive to enhancing political trust,” said Liu Lirong, associate professor at the Centre for European Studies at Fudan University in Shanghai.Additional reporting by Henry Foy and Andy Bounds in Brussels More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Spain’s deputy prime minister Nadia Calviño has highlighted her role in her country’s “ambitious economic policy agenda” as part of her pitch to run the European Investment Bank, as she has emerged as the frontrunner to lead the world’s largest multilateral lender.EU finance ministers meeting in Brussels on Friday are expected to decide who should lead the EIB after its outgoing president, Werner Hoyer, steps down on December 31. The decision has been delayed for months by wrangling among member states, some of which back the second strongest candidate, European Commission vice-president Margrethe Vestager.Calviño has secured the backing of Germany and several other countries and stayed on in the government during her campaign for the EIB. In a confidential letter sent to the EIB in August and seen by the Financial Times, the Spanish official said the bank had an “even more important role to play in shaping the future of Europe” after helping the EU become more “resilient to shocks” such as the financial crisis, the Covid-19 pandemic and the war in Ukraine. Calviño said the EIB had become the EU’s financial arm and praised its record so far. If selected, she would be the first woman ever to run it.With a balance sheet of roughly €550bn, the EIB is expected to play a pivotal role in funding Ukraine’s reconstruction efforts. There is also an ongoing question whether the new president will show more appetite in investing in nuclear projects, something the bank hasn’t lent to in a long time. France, a nuclear power, whose vote is key, has held out in openly endorsing Calviño or Vestager.The bank is the world’s largest multilateral lender and has become instrumental to pursue EU policy goals, from the green transition to helping Ukraine, financing projects for €75bn in 2022. Its presidency, which was once an afterthought, has now become one of the top jobs that EU countries fight over.The EIB’s shareholders consist of EU’s 27 member states, weighted in relation to the size of their economies when they joined the bloc, with the successful nominee requiring the votes of at least 18 countries, where Germany, France and Italy having the largest proportion of the vote. In her pitch Calviño said that Spain has had “a very positive performance in extremely challenging” local and global circumstances during the time she was deputy premier and economy minister.“I have successfully led economic policy in Spain for the past five years, along three axes: fiscal responsibility, social justice and forward-looking structural reforms,” she wrote. She cited Spain’s “strong GDP growth, job creation and international competitiveness” among the indicators that have improved under her steer. Her “leading political profile” gives her a “deep understanding” of European institutions, she said, in reference to her time as EU commission official in charge of mergers and financial services between 2006 and 2018.“I have successfully managed complex economic and legal files, the European interinstitutional regulatory process and the EU budget,” Calviño wrote.Even as she’s considered the frontrunner, Calviño is facing strong opposition from Vestager, who took unpaid leave from the commission to run for the EIB and who is still in the race. In her pitch to the bank and an interview in September with the FT, Vestager said the EIB should be instrumental in helping Ukraine and the war, and tackle climate change.Additional reporting by Paola Tamma in Brussels More