Economy

The hurricane is packing maximum sustained winds of 75 mph (120 kmh), the Miami-based forecaster said. More

(Reuters) – U.S. exchange-traded funds (ETFs) that invest in dividend-paying stocks have enjoyed a rush of inflows since the Federal Reserve kicked off its rate cutting cycle last month, though a jump in U.S. Treasury yields could slow the deluge of investor funds.The group of 135 U.S. dividend ETFs tracked by Morningstar pulled in $3.05 billion in September, the same month the Fed cut interest rates by 50 basis points, its first reduction since 2020. That compares to average monthly inflows of $424 million in the first eight months of 2024.Their newfound popularity has been driven by investors seeking income-generating products ahead of declines in yields that are expected to occur as the Fed continues cutting interest rates. “The pivot in monetary policy translates into cash looking for new homes, and dividend-yielding stocks will be one of the beneficiaries,” said Nick Kalivas, head of factor and equity ETF strategy at Invesco.Whether the trend continues remains to be seen: benchmark 10-year Treasury yields have shifted higher in recent weeks and hit two-month highs on Friday, after a blowout U.S. employment number pointed to a resilient economy that likely does not need the Fed to deliver more large cuts this year. Still, Josh Strange, founder and president of Good Life Financial Advisors of NOVA, said the revival of interest in dividend stocks is a reaction to rising valuations in sectors such as tech as well as in broader markets, in addition to shifts in monetary policy. At 21.5 times future 12-month earnings estimates, the S&P 500’s valuation is near its highest level in three years and is well above its long-term average of 15.7, according to LSEG Datastream. “The S&P 500 has become increasingly concentrated in just a few names, and the momentum has all concentrated around AI, making these stocks look frothy,” Strange said.Yields offered by dividend ETFs vary by strategy, but can range from just under 2% to as much as 3.6%. By comparison, benchmark 10-year Treasuries yield fell to around 3.6% in September.Energy and financial stocks often appear in dividend ETFs, including Chevron Corp. (NYSE:CVX), JP Morgan Chase (NYSE:JPM) and Exxon Mobil (NYSE:XOM). But they also feature pharmaceutical companies like Proctor & Gamble, utilities such as Verizon (NYSE:VZ) (VZ.N > or Southern Co (NYSE:SO). and retailers like Home Depot (NYSE:HD).”If you seek out high dividend payouts, you’re making a tradeoff: you also want to own companies that will grow and be capable of increasing those payouts,” said Sean O’Hara, president of Pacer ETFs, discussing the outlook for dividend ETFs and related products in the latest edition of Inside ETFs. To lessen the risk of owning companies with deteriorating fundamentals, Pacer builds ETF portfolios based on companies’ free cash flows, such as the $24.8 billion Pacer US Cash Cows ETF, launched in 2016. It has attracted $7.1 billion in inflows in the last 12 months. More

X had challenged the fine but the Federal Court of Australia ruled it was obliged to respond to a notice from the eSafety Commissioner, an internet safety regulator, seeking information about steps to address child sexual exploitation material on the platform.Musk took X, then called Twitter, private in 2022. But the company had argued it was not bound to respond to the notice in early 2023 because it was folded into a new Musk-controlled corporate entity, removing liability.”Had X Corp’s argument been accepted by the Court it could have set the concerning precedent that a foreign company’s merger with another foreign company might enable it to avoid regulatory obligations in Australia,” eSafety Commissioner Julie Inman Grant said in a statement following the verdict.eSafety has also started civil proceedings against X because of its noncompliance.X did not immediately respond to a request for comment on Friday.This is not the first conflict between Musk and the Australian internet safety regulator. The eSafety Commissioner earlier this year ordered X to remove posts showing a bishop in Australia being stabbed during a sermon.X challenged the order in court on the grounds that a regulator in one country should not decide what internet users viewed around the world, and ultimately kept the posts up after the Australian regulator withdrew its case.Musk said at the time the order was censorship and shared posts describing the order, which would have applied globally, as a plot by the World Economic Forum to impose eSafety rules on the world.($1 = 1.4609 Australian dollars) More

Investors are also on edge as Middle East tensions escalate, while Japan’s new Prime Minister Shigeru Ishiba is in the spotlight.Here’s all you need to know about the week ahead in global markets from Lewis Krauskopf in New York, Yoruk Bahceli in Amsterdam, Karin Strohecker and Amanda Cooper in London and Kevin Buckland in Tokyo.1/ ONE YEAR OF WAROne year on from Hamas’ Oct. 7 attack on Israel and the region looks on the brink of a sprawling war that could potentially reshape the oil-rich Middle East. The conflict, which has killed more than 42,000 people, the vast majority in Gaza, is spreading. Israeli troops are now in neighbouring Lebanon, home to Iran-backed Hezbollah; Iran launched a large scale missile attack on Israel earlier this week. Global markets have remained broadly unfazed. Oil prices, the main conduit for tremors further afield, have jumped about 8% this week, but soft demand and ample supply globally have kept a lid on gains. A further escalation between Iran and Israel could change that, especially if Israel strikes Iran’s oil facilities, an option that U.S. President Joe Biden said was under discussion.The scars of the conflict are visible on Israel’s economy, which has suffered a number of sovereign downgrades and seen its default insurance spike and bonds slide. 2/ BUSY TIMESU.S. third-quarter earnings season is about to kick into gear, posing a test for a stock market near record highs and trading at elevated valuations.    JPMorgan Chase (NYSE:JPM), Wells Fargo and BlackRock (NYSE:BLK) report on Friday. Other results earlier in the week include PepsiCo (NASDAQ:PEP) and Delta Air Lines (NYSE:DAL). S&P 500 companies overall are expected to have increased Q3 earnings by 5.3% from a year earlier, according to LSEG IBES.    Thursday’s September U.S. consumer price index, meanwhile, will be closely watched for signs that inflation is moderating. Investors are already anticipating hefty rate cuts, after the Federal Reserve kicked off its easing cycle last month.    Elsewhere, investors will seek to gauge the economic fallout from a dockworker strike as U.S. East Coast and Gulf Coast ports reopened on Thursday.3/ A RECKONING France’s new government presents its long-awaited budget to parliament on Thursday. It’s planning a 60-billion-euro belt-tightening drive, around 2% of GDP, next year.It reckons spending cuts and tax hikes should bring the deficit, seen rising to 6.1% this year in the latest upward revision, to 5% by end-2025. The target date for reaching the euro zone’s 3% deficit limit is also being pushed back to 2029 from 2027.That’s bad news just ahead of rating reviews kicking off with Fitch next Friday.Markets are not impressed. Having eased slightly, the extra premium France pays for its 10-year debt over Germany’s widened back to just under 80 bps, near its highest since August.Ultimately, what may matter more is whether Prime Minister Michel Barnier can pass the budget, given a divided parliament that has investors questioning how long his government will last.4/ FEELING SHEEPISHA reluctant joiner to global easing, the Reserve Bank of New Zealand is catching up fast. It meets on Oct. 9 and traders reckon the central bank could follow the Fed’s example and cut rates by half a point. The RBNZ cut rates by 25 bps to 5.25% in August, a year ahead of its own projections. Markets price in a drop below 3% by end-2025. This will still be above where traders think U.S. and euro area rates will be. Shorter-term investors are neutral towards the kiwi, but hedge funds have lapped it up this year. Positioning and potentially higher rates than others might insulate New Zealand’s currency. So could the return of so-called carry trades and in this case, essentially a bearish bet on the yen in favour of bullish ones on high-yielders such as the kiwi. 5/ POLL POSITIONING    When Shigeru Ishiba surprised markets by winning the contest to become Japan’s prime minister, investors rushed to re-position themselves for higher interest rates.    A week on and the landscape looks different, as Ishiba back-flipped not just on monetary policy, but on prior market-unfriendly support for higher corporate and capital gains taxes.    It’s perhaps not surprising for a hawk to hide his talons with a snap election looming on Oct. 27.    Even so, Ishiba was unabashedly blunt, saying after a meeting with the Bank of Japan – whose independence Ishiba has pledged to honour – that the economy is not ready for further rate hikes.    The yen, which had been surging, slid past 147 to a six-week trough by Thursday. Japanese stocks rebounded from their steepest slide since early August.    Check back in a month from now for any further policy flip-flops. (Graphics by Kripa Jayaram, Pasit Kongkunakornkul, Vineet Sachdev; Compiled by Dhara Ranasinghe; Editing by Sonali Paul) More

September’s outsized payrolls boost takes the U.S. economy out of the shadows of recession and gives the Fed a glide path to a soft landing.
The big jobs gain virtually eliminated any chance that the central bank would be repeating its half percentage point interest rate cut from September anytime soon.
The Fed next meets Nov. 6-7, right after the U.S. presidential election and a five-week span during which it will get plenty more to digest.

A hiring sign is posted on the exterior of Urban Outfitters at the Tysons Corner Center mall on August 22, 2024 in Tysons, Virginia. 
Anna Rose Layden | Getty Images

September’s outsized payrolls boost takes the U.S. economy out of the shadows of recession and gives the Federal Reserve a fairly open glide path to a soft landing.
If that sounds like a Goldilocks scenario, it’s probably not far from it, even with the lingering inflation concerns that are straining consumers’ wallets.

A gravity-defying jobs market, at least a slowing pace of price increases and declining interest rates puts the macro picture in a pretty good place right now — a critical time from a policy and political standpoint.
“We’ve been expecting a soft landing. This just gives us more confidence that it seems to remain in place,” Beth Ann Bovino, chief economist at U.S. Bank, said after Friday’s nonfarm payrolls report. “It also increases the possibility of a no-landing as well, meaning even stronger economic data for 2025 than we currently expect.”
The jobs count certainly was better than virtually anyone figured, with companies and the government combining to boost payrolls by 254,000, blowing away the Dow Jones consensus for 150,000. It was a big step up even from August’s upwardly revised numbers and reversed a trend that started in April of decelerating job numbers and rising concern for a broader slowdown — or worse.

Beyond that, it virtually eliminated any chance that the Federal Reserve would be repeating its half percentage point interest rate cut from September anytime soon.
In fact, futures markets reversed positioning after the report, pricing in a near-certain probability of just a quarter-point move at the November Fed meeting, followed by another quarter point in December, according to the CME Group’s FedWatch gauge. Previously, markets had been looking for a half-point in December followed by the equivalent of quarter-point cuts at each of the eight Federal Open Market Committee meetings in 2025.

Not a perfect picture

No more, though, as the Fed, barring any more disappointments from the labor market, can stake a moderate pace through its easing cycle.
“If we continue to see a stronger-than-expected economy that may give the Fed reasons to slow the pace of rate cuts through 2025 with that exit rate being a little bit higher than they currently expect, all with the economy still maintaining its strength,” Bovino said. “That would be good news for both the Fed and the economy.”
To be sure, there remain some blemishes in the jobs picture.
More than 60% of the growth for September came from the usual suspects — food and drinking establishments, health care, and government — that have all been the beneficiaries of fiscal largesse that has pushed the 2024 budget deficit to the brink of $2 trillion.
There also were a few technical factors with the report, such as a low response rate from survey participants, that could cast some clouds over Friday’s sunny report and lead to downward revisions in subsequent months.
But broadly speaking, the news was very good and raised questions over just how aggressive the Fed will need to be.

Questions for the Fed

Bank of America economists, for instance, asked “Did the Fed panic?” in a client note referencing the half percentage point, or 50 basis point, cut in September, while others wondered about the wild vacillations and miscalculations among Wall Street experts. David Royal, chief financial and investment officer at financial services firm Thrivent, speculated that “it is doubtful” the Fed would have cut by so much “if it had known this report would be so strong.”
“The question becomes, how does everybody keep getting it wrong?” said Kathy Jones, chief fixed income strategist at Charles Schwab. “How is it we can’t get this number right with all the information we get?”
Jones said the Fed will have a dilemma on its hand as it figures out the proper policy response. The FOMC next meets Nov. 6-7, right after the U.S. presidential election and following a five-week span during which it will get plenty more to digest.
Some commentary after the report suggested the Fed may have to raise its estimate of the “neutral” rate of interest that neither boosts nor restricts growth, an indication that benchmark interest rates will settle at a higher place than they have in the recent past.
“What does the Fed do with this? Certainly, 50 basis points is off the table for the next meeting. I don’t think there’s any case to be made there,” Jones said. “Do they pause? Do they do another 25 [basis points] because they’re still far from neutral? Do they just weigh this against other data that might not be as strong? I think they have a lot of figuring out to do.”
In the meantime, though, officials are likely to be content knowing that the economy is stable, the labor market isn’t in nearly as much trouble as had been suspected, and they have time to weigh their next move.
“We’ve witnessed a pretty remarkable economy over the past few years, despite some naysayers and lackluster consumer sentiment,” said Elizabeth Renter, senior economist at NerdWallet. “In an election year, passions run high and every economic report or event can garner intense reaction. But the economic aggregates tell us the U.S. economy has been and is strong.”

Don’t miss these insights from CNBC PRO More