Economy

BRASILIA (Reuters) -European Union and South American negotiators ended two days of trade negotiations on Friday with “significant progress” on contentious issues that have been holding up the long-overdue EU-Mercosur agreement, two sources close to the talks said.The sources said the negotiations seem to be on course for a positive conclusion before the end of the year. The meeting marked the first in-person talks since April.”The round of negotiations went very well. There was significant progress in the areas of the environment and government procurement,” said a source at the Brazilian foreign ministry, where the talks were held.”A new round of negotiations should take place in a few weeks,” the official added. Eleven EU governments this week called for a rapid conclusion of the trade deal that has been in the works for 25 years in a letter to European Commission President Ursula von der Leyen.”It is now urgent to secure the progress reached so far and close the negotiations,” the letter seen by Reuters said. “We believe that all elements are in place to allow for a rapid conclusion of negotiations by the end of 2024,” the prime ministers of Germany, Spain, Portugal, Sweden, Denmark, Finland, Croatia, Estonia, Latvia, Luxembourg and the Czech Republic wrote.Mercosur joins Brazil, Argentina, Uruguay, Paraguay and more recently Bolivia in a market that is a sought-after destination for EU manufacturing exporters, though European farmers, especially in France, fear the competition it will bring.The deal was concluded in 2019, but was stalled by EU demands for commitments on Amazon (NASDAQ:AMZN) deforestation and climate change.In the midst of demonstrations by French farmers in January, French President Emmanuel Macron reinforced his opposition to the deal, saying it would cause environmental damage and subject farmers to unfair competition.The main French farmers’ union, FNSEA, said on Friday it opposed the resumption of talks, saying the EU-Mercosur agreement would increase competition for producers of beef, chicken, rice, sugar and ethanol.”European agriculture should not be sacrificed in order to conclude international trade accords. On the contrary, agriculture should be protected and considered one of the main strategic European sectors,” the union said in a statement.With the European election over, now is the time to finalize the deal, the 11 prime ministers said in their letter.”The agreement will create a free trade area encompassing more than 700 million people, creating enormous opportunities for European businesses and workers in markets which have been relatively closed up until now,” the letter said. More

BRASILIA (Reuters) – Brazil’s government is considering tax hikes that do not require congressional approval to balance this year’s budget, two finance ministry sources said on Friday, after officials acknowledged that new revenue measures could be implemented.Taxes in this category could include a levy on financial transactions (IOF), and import and export taxes, which can all be adjusted via presidential decree.On Thursday, the Treasury unveiled a plan for new revenue measures, if necessary, to ensure compliance with the year’s fiscal target of eliminating the primary deficit. The fresh measures could be included in the bimonthly revenue and expenditure report due later this month, the Treasury said.In July, the government froze 15 billion reais ($2.68 billion) in federal expenditures to meet the fiscal goal. The new assessment of federal accounts will be presented on Sept. 20.To finalize its analysis, the Finance Ministry is waiting for approval of a bill that includes compensatory measures for costly payroll tax waivers passed by Congress. These measures include securing resources from judicial deposits, collecting dormant bank account funds and repatriating overseas assets.One of the sources noted that even with the approval of these measures, the implementation process will not be straightforward, requiring the issuance of new regulations and programs.($1 = 5.5988 reais) More

(Reuters) – California’s Democratic Governor Gavin Newsom vetoed a bill on Friday that would have allowed undocumented immigrants access to state funds in helping buy a home, citing “finite funding.””Given the finite funding available for (California Housing Finance Agency) programs, expanding program eligibility must be carefully considered within the broader context of the annual state budget to ensure we manage our resources effectively,” Newsom said in a statement. “For this reason, I am unable to sign this bill.”The state legislature approved the bill and sent it to the governor’s desk last week.The bill was authored by California lawmaker Joaquin Arambula, a Democrat representing Fresno.”AB 1840 is about providing an opportunity to hard-working, responsible people who dream of owning a home and passing that legacy to their children,” Arambula has said about the bill. “And, that includes undocumented immigrants who have lived here for decades and pay their taxes.”Republicans who opposed the legislation said housing assistance for families who came legally to the U.S. should be prioritized and not for undocumented immigrants.Immigration has emerged as an important issue for the upcoming Nov. 5 U.S. elections in which Democratic Vice President and presidential candidate Kamala Harris faces Republican former President Donald Trump.Trump has labeled Democrats as soft on immigration and has advocated for deporting immigrants who have come to the U.S. illegally. He said on Thursday he would ban mortgages for migrants living illegally in California, after claiming without evidence they were driving up housing costs. He did not provide specifics on how he would enact such a ban and did not say whether the ban would apply beyond California. Banks can legally provide mortgages to undocumented migrants, but do so infrequently. More

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

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

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

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