Economy

(Reuters) – Wall Street’s main indexes were set for a higher open on Friday after a crucial labor report eased concerns about a rapid cooldown in the jobs market, while investors remained vigilant for potential escalations in the Middle East conflict.A Labor Department report showed nonfarm payrolls rose 254,000 in September, more than the estimate of 140,000, according to economists Reuters polled. The unemployment rate dipped to 4.1% for the previous month, versus an estimate of 4.2%.Odds of a 25-basis-point reduction at the U.S. Federal Reserve’s November meeting rose to 85.5%, up from more than 71% before the data, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.”For the economy, it means that a soft landing is happening. We continue to add jobs at a rapid clip and the unemployment rate continues to tick down,” said Ross Mayfield, investment strategist at Baird.”It means the Fed is unlikely to cut (by) 50 basis points in November or December, certainly, and maybe even take a pause in November.”Dow E-minis were up 204 points, or 0.48%, S&P 500 E-minis were up 40.25 points, or 0.70% and Nasdaq 100 E-minis were up 197.75 points, or 0.99%.Futures tracking the small-cap Russell 2000 index rose more than 1%.Yield on two-year Treasury notes rose to 3.87% after the data was released as investors priced out a larger reduction by the Fed in November. [US/]Rate-sensitive growth stocks such as Tesla (NASDAQ:TSLA) added 2.2%, Amazon.com (NASDAQ:AMZN) climbed 1.9%, while chip giant Nvidia (NASDAQ:NVDA) rose 1.3% in premarket trading.The labor market has been under greater scrutiny after the U.S. central bank slashed interest rates in September by a rare 50 basis points to stave off further weakening in employment. Traders expect borrowing costs to fall by an additional 56 bps before the year ends, down from an estimate of nearly 79 bps a week ago, according to data compiled by LSEG, as recent reports pointed to strong service sector activity in September.Wall Street’s main indexes closed lower on Thursday and were set to finish the first week of October on a weaker footing as investors were nervous about escalating tensions in the Middle East and the workers’ strike earlier this week.Analysts said the events could impact the inflation and labor figures for October. Energy stocks such as Occidental Petroleum (NYSE:OXY) edged higher 0.71% while Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) crept up 0.60% each as crude prices surged on worries of supply disruptions in the Middle East due to the widening regional conflict.The S&P 500 Energy sector is on track to log its biggest weekly jump since March 2023.Meanwhile, ports on the East and Gulf Coasts began reopening late on Thursday after workers reached a wage deal, but clearing the cargo backlog will likely take time. U.S. shares of Zim Integrated Shipping Services were down 11%.Among others, Spirit Airlines (NYSE:SAVE) nosedived 33% after a report showed the carrier was in talks with bondholders about the terms of a potential bankruptcy filing after its failed merger with JetBlue Airways (NASDAQ:JBLU). More

Nonfarm payrolls surged by 254,000 in September, up from a revised 159,000 in August and better than the 150,000 Dow Jones consensus forecast.
The unemployment rate fell to 4.1%, down 0.1 percentage point as the survey of household employment showed an even stronger picture, with a gain of 430,000.
Average hourly earnings increased 0.4% on the month and were up 4% from a year ago. Both figures were ahead of respective estimates.

The U.S. economy added far more jobs than expected in September, pointing to a vital employment picture as the unemployment rate edged lower, the Labor Department reported Friday.
Nonfarm payrolls surged by 254,000 for the month, up from a revised 159,000 in August and better than the 150,000 Dow Jones consensus forecast. The unemployment rate fell to 4.1%, down 0.1 percentage point.

With upward revisions from previous months, the report eases concerns about the state of the labor market and likely locks in the Federal Reserve to a more gradual pace of interest rate reductions. August’s total was revised up by 17,000 while July saw a much larger addition of 55,000, taking the monthly growth up to 144,000.
Strength in job creation spilled over to wages, as average hourly earnings increased 0.4% on the month and were up 4% from a year ago. Both figures were ahead of respective estimates for gains of 0.3% and 3.8%. The average work week nudged lower to 34.2 hours, down 0.1 hour.

“It was ‘wow’ across the board, much stronger than expected,” Kathy Jones, chief fixed income strategist at Charles Schwab, said of the report. “The bottom line is it was a very good report. You get upward revisions and it tells you the job market continues to be healthy, and that means the economy is healthy.”
Stock market futures added to gains following the report while Treasury yields moved sharply higher.
Restaurants and bars led job creation for the month, with the hospitality industry adding 69,000 positions in September after averaging just 14,000 over the previous 12 months.

Health care, a consistent leader in job growth, contributed 45,000, while government grew by 31,000. Other gainers included social assistance (27,000) and construction (25,000).
A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped to 7.7%. The share of the workforce either working or looking for work, known as the labor force participation rate, held steady at 62.7%.

The survey of household employment, which is used to calculate the unemployment rate, showed an even stronger picture, with a gain of 430,000 as the employment-to-population ratio increasing to 60.2%, an increase of 0.2 percentage point.
Job creation tilted strongly to full-time positions, which were up 414,000, while those reporting part-time work fell by 95,000.
Futures market pricing shifted sharply after the report, with traders now assigning a strong chance of consecutive quarter percentage point interest rate cuts from the Federal Reserve in November and December.
The report comes with questions over the labor market’s strength and how that will impact the Fed’s approach to lowering interest rates.
Earlier this week, Fed Chair Jerome Powell characterized the jobs picture as “solid” but said it has “clearly cooled” over the past year.
There have been scant signs of a stepped-up pace of layoffs, as new claims for unemployment benefits have held steady but hiring rates have cooled. Business surveys, including the Fed’s own “Beige Book” summary of business conditions, indicate that companies are holding head counts fairly steady.
Powell and other Fed officials have indicated a willingness to continue lowering interest rates following last month’s half percentage point cut in the overnight borrowing level. However, there’s considerable debate within the market about how quickly the central bank will move, and Powell said Monday he expects the Fed to move in quarter-point increments at least through the end of the year. More

Nonfarm payrolls increased by 254,000 jobs last month after rising by an upwardly revised 159,000 in August, the Labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls rising by 140,000 positions after advancing by a previously reported 142,000 in August.The initial payrolls count for August has typically been revised higher over the past decade. Estimates for September’s job gains ranged from 70,000 to 220,000.The labor market slowdown is being driven by tepid hiring against the backdrop of increased labor supply stemming mostly from a rise in immigration. Layoffs have remained low, which is underpinning the economy through solid consumer spending. Average hourly earnings rose 0.4% after gaining 0.5% in August. Wages increased 4.0% year-on-year after climbing 3.9% in August. The unemployment rate dropped from 4.2% in August. It has jumped from 3.4% in April 2023, in part boosted by the 16-24 age cohort and rise in temporary layoffs during the annual automobile plant shutdowns in July. The U.S. central bank’s policy setting committee kicked off its policy easing cycle with an unusually large half-percentage-point rate cut last month and Fed Chair Jerome Powell emphasized growing concerns over the health of the labor market.While the labor market has taken a step back, annual benchmark revisions to national accounts data last week showed the economy in a much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.This improved economic backdrop was acknowledged by Powell this week when he pushed back against investors’ expectations for another half-percentage-point rate cut in November, saying “this is not a committee that feels like it is in a hurry to cut rates quickly.”The Fed hiked rates by 525 basis points in 2022 and 2023, and delivered its first rate cut since 2020 last month. Its policy rate is currently set in the 4.75%-5.00% band. Early on Friday, financial markets saw a roughly 71.5% chance of a quarter-point rate reduction in November, CME’s FedWatch tool showed. The odds of a 50 basis points cut were around 28.5%.The labor market, however, is likely to experience some brief turbulence after Hurricane Helene devastated large swathes of the U.S. Southeast last week. Tens of thousands of machinists at Boeing (NYSE:BA) also went on strike in September, with ripple effects on the aerospace company’s suppliers. A work stoppage by about 45,000 dockworkers on the East Coast and Gulf Coast ended late on Thursday after their union and port operators reached a tentative deal. The Boeing strike, if it persists beyond next week, could dent the nonfarm payrolls data for October, which will be released just days before the Nov. 5 U.S. presidential election.  (This story has been refiled to fix a typographical error in paragraph 7) More

LONDON (Reuters) -The Bank of England should move only gradually with cutting interest rates, Chief Economist Huw Pill said on Friday, a day after Governor Andrew Bailey was quoted as saying the BoE might move more aggressively to lower borrowing costs.Pill warned of lingering inflation risks in a speech that prompted a partial recovery in sterling after it slumped on Thursday following Bailey’s comments.”While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast,” Pill told the Institute of Chartered Accountants in England and Wales.”For me, the need for such caution points to a gradual withdrawal of monetary policy restriction.”The BoE’s Monetary Policy Committee is expected to cut interest rates by a quarter-point at its next meeting in November. It cut rates for the first time in more than four years in August, a decision which Pill opposed.Financial markets are more divided about whether the BoE will follow a rate cut in November with another in December. The BoE has not cut rates at consecutive meetings since 2020.Bailey told the Guardian newspaper that the central bank could move more aggressively to cut rates if there was further welcome news on inflation. Sterling rose by a fifth of a cent against the U.S. dollar when Pill’s speech was published, having plunged by more than a cent on Thursday.Investors have largely expected the BoE to cut rates more slowly than the U.S. Federal Reserve and the European Central Bank, a view which Bailey’s comments challenged.Andrew Goodwin, chief UK economist at Oxford Economics, said the chance of a December rate cut was rising as he judged Bailey’s view was more representative of the majority on the BoE’s nine-member Monetary Policy Committee.”The Budget on October 30 is likely to be a decisive factor in whether Bailey’s camp decides to step up the pace of rate cuts, particularly given the recent speculation that the fiscal rules will be changed in a way that allows looser fiscal policy,” Goodwin said. Finance minister Rachel Reeves has said higher taxes are likely at her first budget since Labour returned to government on July 4 but she and Prime Minister Keir Starmer have also stressed the importance of boosting investment. Pill said he remained concerned about the possibility of structural changes in Britain’s economy that could sustain inflation pressures, which gave “ample reason” for caution in assessing how quickly that persistence would lift. Pill also said that inflation among services firms and pay growth represented “a continued source of concern”.An alternate economic forecasting model – which had similar starting assumptions to the BoE’s main model, but did not have the same built-in constraints on possible outcomes – showed inflation staying slightly above 2% over the medium term.Pill said the alternate model should be taken seriously, and that it suggested the neutral interest rate and the natural rate of unemployment could both be higher than the BoE had assumed.”I am worried more about inflation than what’s reflected in the MPC’s published forecasts,” he said. More

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WHY IT’S IMPORTANTBrazil’s government has been seeking new sources of revenue to meet fiscal targets that include reducing its fiscal deficit to zero, while being loath to adopt broad spending cuts. It says the new move is in line with global efforts to combat tax evasion.DETAILSThe executive order sets an additional levy on Brazil’s social contribution tax on corporate income (CSLL) to make sure the minimum taxation stands at 15%, according to the publication.Brazilian officials had previously said the move was being considered both as a way to align the country with tax discussions it has been addressing as chair of the G20 and to ensure that the 2025 fiscal goal is met.KEY QUOTEThe move comes as Brazil “adapts to the Global Anti-Base Erosion Rules (GloBE Rules) elaborated by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting,” the order signed by President Luiz Inacio Lula da Silva said.ADDITIONAL BACKGROUNDBrazil’s Finance Ministry did not immediately detail how much it expects to collect in additional tax revenue following the move. Government officials will hold a press conference on the topic later on Friday, the ministry said.Executive orders in Brazil have immediate validity but must be endorsed by lawmakers within four months or they expire. More

LONDON (Reuters) -Sudden ebbs and flows of inflation without equivalent hits to economic output may be a feature of a post-pandemic world of fragile supply chains – potentially requiring more forceful and hyperactive central banking, and possibly in both directions.The speed of the global inflation spike after the twin shocks of COVID-19 and the Ukraine invasion has by now almost been matched by the disinflation that’s followed. So much so, that central banks are now just as rapidly reversing the steep, and arguably late, interest rate squeeze they used to contain prices over 2022 and 2023.The truly remarkable outcome despite that roller-coaster is a likely “soft landing” for economies without any major contraction of overall output. And a big question for policy makers, business and financial markets alike is whether we’ve just returned to square one while dodging a rare bullet.Trying the frame the lessons of the episode this week, the Bank for International Settlements – the umbrella organisation for global central banks – once again sketched a world where supply shocks may be more frequent and inflation edgier.But in a speech in London this week, BIS Deputy General Manager Andrea Maechler nuanced the picture to suggest central banks should no longer “look through” supply shocks as temporary inflation irritants in the way they had often done pre-pandemic.In particular, she spotlighted much steeper supply curves and a steeper “Phillips Curve”, which plots the relationship between unemployment and wages, or more broadly output and prices.The gist of her argument is that such steep supply curves mean bigger moves in prices for a given shift in output, seen most spectacularly as post-pandemic labour shortages led to wage surges for companies that wanted to ramp up business quickly.Disruptions to overseas supplies and imports – most obviously in the post-Ukraine energy price shock – similarly meant rising output twinned with a supply shock had a much sharper effects on overall prices than previously.And crucially, the impact on economy-wide inflation was greater and more rapid than prior commodity and sectoral shocks of recent decades because they hit when overall inflation was already above central bank target rates, Maechler said, pointing to BIS studies illustrating that effect. TAKE CAREMaechler concluded “central banks must exercise care when assessing the extent to which they can afford to look through supply shocks”. And that should colour their approach as those supply shocks were set to be more frequent in a world of de-globalisation, geopolitical tension, falling workforces, high public debt, climate change and a transition to green energy.Being more “forceful” and active in their policy response, regardless of the impact on underlying demand, was likely necessary to ensure more volatile inflation in the short term did not disturb longer-term inflation expectations and faith in 2% targets remained.But most intriguingly, given the head-scratching over how the wild swings in inflation and interest rates of late did not sow a major recession, Maechler said steep supply curves also meant wages and prices may more quickly subside to target with only relatively mild hits to output from higher interest rates.”Raising policy interest rates in response to adverse supply shocks may have only limited effects on activity if Phillips curves are steep,” she said. “Then, slowing the economy to tame inflation could be less costly in terms of output.””Today’s soft landing outlook may be partially explained by the economy – and in particular labour markets – being in a state where the Phillips curves are steeper than had been the case in the decades prior to the pandemic.”UNDERSHOOTWhere all of that fits into today’s picture is less clear, though the theme of persistent supply is clearly topical in a week of such ramped-up geopolitical anxiety. Whether the steep supply curves of the post-pandemic period endure or whether most of the quirks have already been ironed out is another question.But presumably it would also suggest supply-related developments that see inflation suddenly undershooting targets again and potentially threatening price stability on the downside should similarly be met with central banking force.Only this week, European Central Bank policymaker Mario Centeno made that case clearly as the ECB en masse appeared to pivot to faster easing. “Now we face a new risk: undershooting target inflation, which could stifle economic growth,” he said.Facing falling monthly prices last month and annual inflation back below 1%, new Swiss National Bank chairman Martin Schlegel also said the SNB was not ruling out taking interest rates back into negative territory.And even recent hold-outs at the Bank of England suggested they pick up the pace too, with BoE boss Andrew Bailey talking of being “a bit more aggressive” in cutting UK rates.For investors, the whole scenario points to a more volatile interest rate environment in both directions than they had been accustomed to in the pre-COVID decade. And yet it could remain a potentially positive horizon for company earnings and equities if broader economies can continue to surf wavier prices and borrowing rates much better than they have done for decades.The opinions expressed here are those of the author, a columnist for Reuters(By Mike Dolan; Editing by Jamie Freed) More

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