Economy

WHY IT’S IMPORTANTBarnier, who took office earlier this month, already finds himself facing a growing budget crisis as tax income is weaker than expected and spending higher than planned.France’s credibility with financial markets, where its borrowing costs have surged, and its European Union partners is on the line.BY THE NUMBERSBarnier said the increase in corporate tax will only apply to companies with turnover of more than 1 billion euros ($1.10 billion) a year.He also said he will propose a temporary income tax increase for households earning more than 500,000 euros ($551,450) a year. He said it could raise about 2 billion euros.Barnier also confirmed he wants to push back the planned increase of pensions in line with inflation by six months to July 1, instead of Jan. 1 next year.KEY QUOTES “I’m taking the risk to be unpopular, but I want to be responsible.””What weighs on my mind, my fear, is a financial crisis, like what happened in Italy a few years ago, like what happened in Britain.”CONTEXT The new government lacks a parliamentary majority, and getting the budget adopted will be difficult. Even parties that are in the government do not agree on whether tax increases are an option.The previous government had planned to cut the fiscal shortfall to 3% of GDP by 2027, but Barnier had to push back this target by two years.WHAT’S NEXTBarnier needs to finalise the 2025 draft budget in days and hand it over to lawmakers by mid-October at the very latest.($1 = 0.9067 euros) More

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(Reuters) – Wall Street was poised to open slightly lower on Thursday after a moderate rise in jobless claims sparked worries about the health of the labor market, while cautious investors kept an eye on the Middle East for any escalation in hostilities.A Labor Department report showed the number of Americans filing new applications for unemployment benefits was 225,000 for the week ended Sept. 28, compared with an estimate of 220,000, according to economists Reuters polled. Odds that the U.S. central bank will trim rates by 25 basis points at its November meeting now stand at 64.5%, up from 50.7% a week ago, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.Focus now turns to Friday’s nonfarm payrolls data for the month of September.Rate-sensitive heavyweights took a hit, with Tesla (NASDAQ:TSLA) dropping 1.57%, Apple (NASDAQ:AAPL) edging down 0.61% and Alphabet (NASDAQ:GOOGL) slipping 0.57% in premarket trading. Yields on Treasury bonds inched higher after the data was released. [US/]Investors have been wary for the last two sessions as they contemplated the scale of Israel and the United States’ response to Iran’s recent attack on Israel. The CBOE volatility index, Wall Street’s fear gauge, hovered at more than three-week highs at 19.74.”We’ll see some cautiousness due to two factors: the war headlines that continue to impact the equities market and of course, tomorrow’s unemployment data,” said Peter Cardillo, chief market economist, Spartan Capital Securities.”It’s safe to say that we’ll probably have a mixed market session today as investors’ cautiousness rises ahead of tomorrow’s key macro data of the month.”Dow E-minis were down 119 points, or 0.28%, S&P 500 E-minis were down 10 points, or 0.17% and Nasdaq 100 E-minis were down 58.75 points, or 0.29%.The Institute for Supply Management’s survey on service sector activity, which makes up the majority of the U.S. economy is due at 10 a.m. ET. U.S. stocks have rallied for much of the year, with the benchmark S&P 500 confirming a bull rally and logging gains in eight of the previous nine months on expectations of lower borrowing costs. Tech stocks have led the charge on the prospect of their earnings getting a boost from artificial intelligence integration.Investors will also assess comments from Fed policymakers Raphael Bostic and Neel Kashkari later in the day. Richmond Fed President Thomas Barkin said on Wednesday that sticky inflation could limit the magnitude of further interest rate cuts next year.Meanwhile, a workers’ strike on the East and Gulf coasts entered its third day. Morgan Stanley economists said a prolonged stoppage could raise consumer prices, with food prices likely to react first.Among premarket movers, oil stocks such as Occidental Petroleum (NYSE:OXY) and Exxon Mobil (NYSE:XOM) edged up 0.30% and 0.39%, respectively, although crude prices rose more than 1%. [O/R]Levi Strauss (NYSE:LEVI) slid 11.6% after the company said it was considering a sale of its underperforming Dockers brand and forecast fourth-quarter revenue below expectations.Constellation Brands (NYSE:STZ) dropped 1.9% after posting second-quarter results. More

ORLANDO, Florida (Reuters) – In today’s digital and services-dominated economy, one might be forgiven for buying into the narrative that oil no longer has any real bearing on inflation.     That would be a mistake. Inflation is starting to undershoot some central banks’ targets, in large part because the year-on-year change in the oil price is deeply negative. This is sending a clear message: oil still matters – a lot.    There’s barely any corner of the economy that oil doesn’t reach. It heats homes and businesses, powers factories and every means of transport, and is a key input in the production of chemicals, plastics, materials and all manner of goods.    True, its direct and indirect contribution to price pressure has been diluted compared to the energy-intensive economy of decades gone by, but oil is still one of the most accurate inflation weather vanes around. And, despite recent geopolitical ructions, it’s still clearly pointing in one direction.    HEAD FAKE    If investors get their oil price forecast wrong, chances are their view of inflation – and, by extension, central bank policy and the broader macro landscape – will also be blurred at best, and blinded at worst.    This is happening now. The past year featured many head fakes, misleading signals and wrong calls in financial markets, but perhaps the most consequential has been the collective miss on the direction of oil.   In a Reuters poll of economists and analysts conducted a year ago, the average 2024 price of Brent and West Texas Intermediate futures was forecast to be around $86 a barrel and $83/bbl, respectively.     Brent rose above $90/bbl in April and WTI got close to that level, but oil prices have fallen sharply since then and last month dipped below $70/bbl. The year-on-year change in WTI has been negative every day since July 22 and approached -30% as recently as last week.    The effects of this on overall inflation are huge. Annual inflation in the euro zone is now 1.8%, below the European Central Bank’s 2% target for the first time in more than three years. Consequently, ECB interest rate cut expectations have intensified considerably, even though central banks are theoretically supposed to ignore energy price fluctuations.    These dynamics are also easing price pressures in the United States, where energy inflation accounts for around 7% of the consumer price index and a much higher share of the producer price index.      FED UNDERSHOOT?    Are current energy dynamics signaling that the Federal Reserve could cut rates more quickly than many expect? It’s possible. Analysts at Goldman Sachs estimate that the energy price contribution to annual U.S. CPI will increase one-tenth of a percentage point to -0.35 percentage points by April next year, pushing headline CPI as low as 1.9%, below the Fed’s 2% goal.    Using the current oil price futures curve as a guide, headline CPI inflation in April could slow to 1.8%.    Energy costs impact more than just headline inflation. Even if oil prices hold steady, core inflation will still be as much as 0.15 percentage points lower by the end of next year, and will drop a further 0.15 percentage points if oil falls another $20/bbl, Goldman’s analysts reckon.    On the surface, the above figures may sound like small numbers, but in central banking every basis point matters. And these shifts can still move the needle on inflation and thus accelerate the Fed’s easing cycle. Some measures of annualized monthly inflation rates are already at or below the Fed’s 2% target, and Fed Governor Christopher Waller recently warned that core inflation could soon follow suit.    “Consumer energy prices are dragging down headline inflation. With oil prices down another 7% in September … this drag should intensify in the September CPIs,” JP Morgan economists wrote late last month.Now, a geopolitical or economic shock could obviously disrupt this narrative. But, for now, it’s reasonable to assume that weak oil price dynamics could send central banks back to their pre-pandemic playbooks sooner than anyone thought.(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Kirsten Donovan) More

Below is a condensed timeline of key events:* February 2022 – Credit ratings agency Moody’s (NYSE:MCO) downgrades Ghana’s rating, saying it had a “very high credit risk”. Fitch had cut its Ghana credit rating to B- from B the previous month.* March 2022 – Ghana’s central bank hikes interest rates by a record 250 basis points to 17% in a bid to stem rocketing inflation and a weakening currency.* May 2022 – Ghana’s then-Finance Minister Ken Ofori-Atta says it will manage its debt without help from the International Monetary Fund (IMF).* July 1, 2022 – Ghana’s government changes its mind and asks the IMF for a loan, amid street protests against growing economic hardship.* July 20, 2022 – Parliament approves a $750 million loan from the African Export Import Bank as it scrambles to avoid default.* August 2022 – The central bank delivers another record interest rate hike, as inflation continues to climb.* Dec. 5, 2022 – The government launches a domestic debt exchange in a bid to deal with spiralling debt payments.* Dec. 12, 2022 – Ghana and the IMF reach a “staff-level agreement” on a $3 billion rescue package, with debt restructuring one of the conditions.* Dec. 20, 2022 – The government says it will default on most external debt.* Dec. 22, 2022 – Local pension funds are exempted from the domestic debt exchange after unions threaten a general strike.* January 2023 – Ghana requests a debt restructuring under the G20’s Common Framework process, set up in response to the COVID-19 pandemic.* February 2023 – The finance ministry says the domestic debt exchange closed with about 85% of “eligible” bondholders on board, after five deadline extensions.* March 2023 – The government and a group of holders of about $13 billion in international bonds start debt restructuring talks via their respective advisers.* May 2023 – Ghana’s official creditors form a committee co-chaired by China and France and commit to restructuring their loans to the country. These “financing assurances” pave the way for the IMF board to approve the $3 billion rescue loan, five days later.* June 2023 – The government sends a restructuring proposal to official creditors, as it aims to cut $10.5 billion in interest payments over the following three years.* October 2023 – Ghana and the IMF reach a staff-level agreement on the first review of the $3 billion loan programme, with a second $600 million payout contingent on agreeing a debt rework plan with official creditors. The finance ministry proposes a 30-40% haircut to bondholders; bond prices sink in response.* January 2024 – Ghana reaches a deal-in-principle to restructure $5.4 billion of debt to its official creditors. The IMF approves the next loan tranche disbursement a week later.The government tells overseas bondholders that it wants a simple debt restructuring, rather than using any “state-contingent debt instruments”, which link payouts to variables such as economic growth or commodity prices.* February 2024 – Ghana’s president replaces Ken Ofori-Atta as finance minister with his deputy Mohammed Amin Adam, who pledges to keep the IMF programme on track.* March 2024 – Ghana and the international bondholder group kick off formal talks.* April 2024 – Ghana and bondholders fail to strike a deal, with the government saying the proposals put forward were not extensive enough to cut its debt to a level the IMF would judge as sustainable.* May 2024 – Ghana’s government confirms that a draft memorandum of understanding has been received from its bilateral creditors. Once signed, the MoU will formalise the $5.4 billion agreement reached in January with the likes of France and China.* June 2024 – Ghana and its international bondholders reach an agreement in principle on restructuring of its dollar bonds.* September 2024 – Ghana launches its consent solicitation and bonds exchange offer to investors.* October 2024 – The government says more than 90% of investors voted to approve the restructuring of the bonds following the offer. More

Initial claims for state unemployment benefits increased 6,000 last week to a seasonally adjusted 225,000 for the week ended Sept. 28, the Labor Department said on Thursday.Economists polled by Reuters had forecast 220,000 claims for the latest week. Claims are at levels consistent with a stable labor market, which is being anchored by low layoffs.The calm is, however, likely to be temporarily shattered after Helene wreaked havoc in North Carolina, South Carolina, Georgia, Florida, Tennessee and Virginia late last week. It destroyed homes and infrastructure, and killed at least 162 people across the six states. Homeland Security Secretary Alejandro Mayorkas this week said the recovery would involve a “multibillion-dollar undertaking” lasting years.Work stoppages by about 30,000 machinists at Boeing and 45,000 dockworkers at the U.S. East Coast and Gulf Coast ports are also expected to muddy the labor market view. Though striking workers are not eligible for unemployment benefits, their industrial action is likely to ripple through the supply chain and other businesses dependent on Boeing and ports, and cause temporary layoffs. Boeing has announced temporary furloughs of tens of thousands of employees, including what it said was “a large number of U.S.-based executives, managers and employees.”The number of people receiving benefits after an initial week of aid, a proxy for hiring, slipped 1,000 to a seasonally adjusted 1.826 million during the week ending Sept. 21, the claims report showed. The so-called continuing claims have settled down after scaling more than 2-1/2-year highs in July following policy changes in Minnesota that allowed non-teaching staff in the state to file for jobless aid during the summer school holidays.The slowdown in the labor market is being driven by cooler hiring following 525 basis points worth of rate hikes from the Federal Reserve in 2022 and 2023 to combat inflation. The U.S. central bank last month cut its benchmark interest rate by an unusually large 50 basis points to the 4.75%-5.00% range, the first reduction in borrowing costs since 2020, acknowledging the growing risks to the labor market. The Fed bank is expected to cut rates again in November and December.The claims data have no bearing on September’s employment report as they fall outside the survey week. According to a Reuters survey, nonfarm payrolls likely increased by 140,000 last month after rising by 142,000 in August. Job gains averaged 202,000 per month over the past year. Should the Boeing and ports strikes continue beyond next week, they could depress October payrolls on the eve of the Nov. 5 presidential election.The unemployment rate is forecast to be unchanged at 4.2% in September. It has increased from 3.4% in April 2023 as a surge in immigration boosted labor supply. More

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LONDON (Reuters) – Conflict in the Middle East is escalating once more, but the mood music across financial markets remains upbeat for now due to shifts in oil production and as global interest rate cuts eclipse geopolitics. Israel, still battling Hamas in Gaza, bombed Beirut on Thursday as it continued its conflict with Lebanese group Hezbollah days after being attacked by Iran. Yet MSCI’s world stock index is just 1% off last week’s record highs and oil prices, which rose around 5% in the 24 hours after Iran’s missile attack on Israel, have steadied around a far from threatening $75 dollars a barrel. Certainly, a bigger escalation that disrupts supplies of oil from the Middle East and shakes the global economy would invoke a bigger reaction, and the fact that stock markets are near record highs could make them vulnerable to sharp falls.But for now markets are cushioned by the prospect of more monetary easing and by the United States’ expanded role in oil production, which has offset the Middle East’s dominance.Wall Street’s so-called fear gauge, the VIX volatility index, is at a moderate level around 20 – well below a post-pandemic peak above 60 hit during market turmoil in early August linked to an unwind in global carry trades. “When we think about geopolitical risk and its transmission into asset prices, what will obviously have a bigger impact is if we see outcomes that materially impact growth or inflation,” said Mark Dowding, BlueBay Asset Management’s chief investment officer.”The main concern really has been through a transmission impact on oil prices. But even here, we’ve been in a situation where, if anything that the oil price had been sliding.”The United States becoming a big oil producer – the world’s biggest for the past six years – has reduced global sensitivity to Middle East supply disruptions, analysts say. And European energy markets have reorganised themselves since Russia’s invasion of Ukraine, which was a dramatic example of how an energy price surge can roil global markets and economies. “The growing importance of the U.S. would suggest that risks to energy supply from rising tensions in the Middle East are somewhat mitigated,” said Katharine Neiss, chief European economist at PGIM Fixed Income. DIFFERENT TIMESIn 2022, when Russia invaded Ukraine, oil prices surged above $100 and gas prices soared, unleashing a fresh wave of inflation that piled pressure on central banks to hike interest rates, driving bond yields higher, especially in the U.S. and, in turn, boosting the dollar.The situation today is different. Central banks are already in easing mode and hopeful the U.S. will avoid recession. The world economy is not primed for an oil shock, said Trevor Greetham, Royal London Asset Management head of multi asset, because it is at a “softer stage of the cycle.”That contrasts with 2022, “when Ukraine happened, you were already in that period where you were just starting to get very high inflation numbers,” Greetham said.The current backdrop of easier monetary policy supports investor sentiment, even as tensions in the Middle East rise.Tilmann Kolb, emerging markets strategist at UBS Global Wealth Management, said that while the past two years had seen significant developments in domestic and international politics, for markets, the economic outlook remained key.”Where is inflation going? How is the Fed responding? Is growth holding up?,” he said.Meanwhile, investors have jumped on announcements of long-awaited economic stimulus measures from China that have sent Chinese shares surging, and boosted global assets from luxury stocks to industrial metals and miners.”The impact of China delivering a big policy stimulus last week was almost a more significant factor in terms of what it means for global demand and growth,” said BlueBay’s Dowding.RISK ON TO RISK OFFOf course, the dial could swing very quickly and oil itself remains the transmission mechanism if geopolitics flare further. Tina Fordham, founder and geopolitical strategist at Fordham Global Foresight, said she was watching to see if Israel would target either Iran’s energy infrastructure or nuclear facility.”Either of those targets would result in a market impact,” she said. “Where this could get more problematic is, for example, if Ukraine targets Russian energy infrastructure at the same time.”And with stock markets near record highs, there is scope for dramatic tumbles, policymakers warn.The Bank of England said on Wednesday that global asset prices remain stretched and are vulnerable to a big fall as investors grow more concerned about geopolitical risks.And for Andrew Bresler, CEO at Saxo UK, assets are mispriced given geopolitical risks, adding that volatility indicators such as the VIX should be higher. “It’s a little bit alarming to me how desensitised markets are to geopolitical risks,” he said. More