Economy

Consumer spending edged up 0.1% in July year-on-year, compared with the median market forecast for 1.2% growth. On a seasonally adjusted, month-on-month basis, spending decreased 1.7% versus an estimated 0.2% drop.Data a day earlier showed Japan’s inflation-adjusted wages grew for the second straight month in July, primarily thanks to a bump in summertime bonuses. Base pay, or regular pay, marked the fastest pace of increase in nearly 32 years, reflecting results from this spring’s labour-management wage talks.But a government official said the big test would be whether real wages continue rising in August and beyond, without the seasonal factor of summer bonuses. Along with solid wages and durable inflation, robust consumption is among the factors the Bank of Japan says are key to its decision to raise interest rates further. The BOJ ditched negative interest rates in March and raised short-term rates to 0.25% in July on the view the economy was making progress toward durably achieving its 2% inflation target.The Japanese government last month upgraded its economic assessment for the first time in more than a year on signs of improving personal spending, which accounts for more than half of Japan’s economy. More

The new forecast marks a reduction of 4.75 percentage points compared to last month’s survey.Prices are seen rising by 3.5% in September, according to the poll, slowing down after a surge that followed deep spending cuts as well as the devaluation of the peso currency enacted by libertarian President Javier Milei in a bid to reduce sky-high inflation.Analysts also projected a 3.8% year-on-year drop in the South American economy’s real gross domestic product (GDP) for 2024, slightly lower than their prior estimate.”The activity level would begin to recover in the third quarter of the year, with a rise of 0.9%,” according to the survey, while participants estimated growth would average 3.5% in 2025.The survey polled 42 analysts from August 28-30. (Report by Nicolas Misculin; Editing by Sonali Paul) More

ORLANDO, Florida (Reuters) -The past month in markets has been littered with momentous events: a record burst in U.S. stock market volatility, near-confirmation from the Federal Reserve that U.S. interest rates will soon be cut, and the biggest ever one-day crash in a listed company’s market cap.    But one constant has been the resilience of bonds, which are once again fulfilling their role as the classic hedge in a traditionally diversified portfolio. This is a sign that the economic landscape is shifting and that investors may increasingly move away from equities – which are near record highs and, historically, on the expensive side – towards fixed income.If so, the 40% weighting of bonds in the traditional ’60-40′ investment portfolio is going to have to carry a heavy load.    To be sure, bonds’ strong performance didn’t start in the last few weeks. Yields across the U.S. Treasury curve have generally been falling since April, as asset managers have been steadily building their long Treasury futures positions for most of this year to new record-high levels.    According to Bank of America, global bond funds have attracted $425 billion of inflows this year, around $40 billion more than global equity funds. Investment Company Institute figures show that U.S. mutual funds’ year-to-date bond inflows are currently around $315 billion, nearly four times more than equity inflows.    This flight to bonds suggests that investors have been positioning for a breakout in fixed income returns that hasn’t yet occurred. The ICE BofA Treasury index is up only 3% this year while the S&P 500 is up over 15%, even after the recent turbulence.    But the balance appears to be shifting. RETURN TO ‘NORMAL’?    The theory behind the standard balanced portfolio is that the 60% allocation to equities provides the bulk of returns, while the 40% slice of bonds can offer downside protection in times of market volatility and economic uncertainty. But this only works if there is a negative correlation between equities and bonds when markets get rocky. And until recently the simple correlation between the S&P 500 and Treasuries was overwhelmingly positive, as investors fretted over elevated interest rates more than growth.But it has now flipped. Strategists at Truist Advisory Services note that core bond returns were positive during the S&P 500’s 8.5% drawdown in the three weeks through Aug. 5. In fact, the last time stocks fell more than 5% and bonds rose was more than four years ago.     True, one month does not make a trend. But markets may be at a turning point: the root cause of equity market angst is no longer ‘higher for longer’ borrowing costs but rather a ‘hard landing’. Growth is now the worry, not inflation.     Consider how dramatically markets have reacted to modestly negative economic data. Figures on Tuesday showed that U.S. manufacturing activity shrank in August, as it has done almost every month for the last two years. That was hardly a shock, but it sparked a stampede out of stocks and into bonds.     The S&P 500’s fall of 2.1% was the biggest one-day drop following an ISM data release since October 2022, notes Citi’s Stuart Kaiser. And then there was the explosion of volatility in the first week of August related, in part, to a slight uptick in U.S. unemployment. The risk/reward balance of holding equities has deteriorated as the economic slowdown becomes clearer.    So what happens if the soft landing fails to materialize and the economy tips straight into recession? History suggests equities will fall and Treasuries will rise.     And if growth slows but the economy manages to skirt recession? History indicates equities will probably rise, but bonds will too. Either way, bonds seem to be the safer bet.    It is probably safe to say that if the 60-40 portfolio struggles in the coming months, it won’t be bonds’ fault.    (The opinions expressed here are those of the author, a columnist for Reuters.) More

PORT-AU-PRINCE (Reuters) -U.S. Secretary of State Antony Blinken on Thursday called for renewing a United Nations mandate for an international security mission to help Haiti fight armed gangs that have taken over much of the country’s capital and expanded to nearby regions.The mission’s mandate, first approved for 12 months, is set to expire at the start of October, but has seen few results with few troops on the ground and far less funding than hoped.”At this critical moment you need more funding, you need more personnel to sustain and carry out the objectives of this mission,” Blinken told a press conference in Port-au-Prince.He said the U.S. – the mission’s largest financial backer – planned to convene a ministerial meeting at the U.N. General Assembly this month, to encourage more financial contributions and renew the mandate.”The mission itself needs to be renewed, that’s what we’re working on right now. But we also want something that’s reliable, that’s sustainable and we’ll look at every option to do that; a U.N. peacekeeping mission is one option,” Blinken said.The current U.N.-ratified mission is being led by Kenya, which with under a month left on the mandate remains the only country to have deployed, with around 400 police officers arriving in Port-au-Prince in June and July from an expected total of 1,000.A handful of other countries have together pledged at least 1,900 more troops, and hundreds of millions of dollars in support. By late August, just $63 million had been paid into the U.N.’s dedicated trust fund.The mission has faced setbacks such as delays in paying the Kenyan officers and supplying key equipment such as firing towers for armored vehicles.”Much remains to be done and we’re determined to continue,” Blinken said. “It’s starting to move.”He also urged Haitian authorities to put the country on track for elections next year. Haiti last held elections in 2016 and its last elected president was assassinated in 2021.Blinken met with Haitian Prime Minister Garry Conille and the head of its presidential council Edgard Leblanc Fils during his visit. He also announced a further $45 million in humanitarian aid for Haiti.Nearly 580,000 people have been internally displaced by the conflict, hundreds of thousands who fled the country have been deported back to Haiti, and close to 5 million people are facing severe hunger. More

The Honduras-based development bank’s claims against former Executive President Dante Mossi, who led CABEI between 2018 and 2023, include violations of racketeering laws, breach of fiduciary duty, market manipulation and breach of contract, it said in a statement.The bank did not renew Mossi’s tenure last year, a decision that CABEI said in its lawsuit reflected concerns about his leadership and character. In response, Mossi, a Honduran national, told Reuters he was surprised by the lawsuit and it lacked merit. “My management at the bank was completely audited,” he said, “I’m not afraid.”A 2023 investigation by the Organized Crime and Corruption Reporting Project, a consortium of journalists, found that CABEI under Mossi funded infrastructure projects that were dogged by corruption allegations and its loans were used to pay bribes.Founded in 1960, CABEI’s members include eight countries in Central America as well as seven countries outside the region. Mossi contended CABEI’s case was a response to his lawsuit claiming the bank owes him $6,000. He has demanded more than $3 million in damages and legal fees over the issue.In the CABEI complaint, it said it refused to pay the $6,000 because he had used bank funds to hire a lawyer to assess the decision not to retain him.It described Mossi’s lawsuit as part of “an unrelenting campaign of extortion” against the bank. More

(Reuters) -A U.S. judge on Thursday temporarily blocked President Joe Biden’s administration from implementing its latest student debt forgiveness plan, just days after seven Republican-led states filed a lawsuit seeking to halt it.U.S. District Judge J. Randal Hall in Augusta, Georgia, said the states had established a likelihood of proving the Education Department lacked authority to cancel student loans under the plan, which the states alleged it was on the verge of doing.”This is especially true in light of the recent rulings across the country striking down similar federal student loan forgiveness plans,” Hall, an appointee of Republican former President George W. Bush, wrote.Hall issued a temporary restraining order after Republican state attorneys general sued on Tuesday over a rule the Education Department proposed in April that would allow it to provide full or partial debt relief to certain types of borrowers.The rule, which according to court papers would affect an estimated 27.6 million borrowers, has yet to be finalized.But the state attorneys general said they had obtained documents showing the department had instructed federal loan servicers to begin canceling loans under the policy as soon as this week, potentially resulting in what they said would be the unlawful forgiveness of $73 billion in debt overnight.The states, led by Missouri, said the Education Department has no authority to carry out such debt forgiveness. The administration has estimated the cost of the policy at $146.9 billion, while the states peg the cost in the hundreds of billions of dollars.Hall said he decided to “hastily” issue the order pausing the policy pending a Sept. 18 hearing in order to preserve the status quo.The White House said in a statement it strongly disagreed with the ruling, calling it “an overreach based on false claims fueled by Republican elected officials.”Republicans object to the cost of debt forgiveness and argue it is unfair to make some taxpayers cover the expense of other peoples’ college educations. “Today is a huge victory for every working American who won’t have to foot the bill for someone else’s Ivy League debt,” Missouri Attorney General Andrew Bailey, a Republican, said in a statement.An Education Department spokesperson said it was reviewing the ruling, adding the draft rule at issue would not be implemented until it was finalized. “The department is committed to supporting borrowers and fighting for relief for those who qualify,” the spokesperson said.The lawsuit is the latest legal challenge to the Democratic president’s efforts to fulfill a campaign pledge and bring debt relief to millions of Americans who turned to federal student loans to fund their costly higher education.The department under Biden has already approved $169 billion in debt relief for nearly 4.8 million people.Republican-led states successfully convinced the 6-3 conservative majority U.S. Supreme Court in June 2023 to block a $430 billion program championed by Biden that would have canceled up to $20,000 in debt per borrower for up to 43 million Americans.The administration then pursued a different program dubbed the Saving on a Valuable Education, or SAVE, plan, that was designed to lower monthly payments for millions of borrowers and speed up loan forgiveness for some.But Republican-led states convinced a federal appeals court to block that plan while litigation over it continues to play out. The Supreme Court on Aug. 28 declined to lift that injunction. More

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Wall Street is gearing up for one of the most important economic releases of the year Friday.
The consensus is for the nonfarm payrolls report to show growth of 161,000 for August and a slight decline in the unemployment rate to 4.2%.
Markets are certain the Fed will start lowering interest rates in a couple weeks, with the possibility of a jumbo cut depending on what Friday’s report shows.

Andreypopov | Istock | Getty Images

Wall Street is gearing up for one of the most important economic releases of the year Friday, when the Labor Department puts out a jobs report expected to go a long way in determining the future of Federal Reserve policy.
The Wall Street consensus is for nonfarm payrolls growth of 161,000 for August and a slight decline in the unemployment rate to 4.2%, according to Dow Jones.

However, recent data, including a massive downward revision to previous counts, has pointed to a sharp slowdown in hiring and has put some downside risk to that forecast.
In turn, markets are certain the Fed will start lowering interest rates in a couple weeks, with the possibility of a jumbo cut depending on what Friday’s report shows.
“The labor market has cooled faster than we originally had been told, so that’s what’s calling [Friday’s report] into question,” said Giacomo Santangelo, economist at job search site Monster. “What the Fed is going to do in response, how are they going to adjust rates, that’s why we are having this conversation.”
While job growth has been tailing off through much of 2024, the deceleration hit home for the market with a July report that showed payroll growth of just 114,000. That wasn’t even the lowest number of the year, but it followed a Fed meeting that stirred up sentiment the central bank was being too complacent about a weakening economy and might hold interest rates high for too long.
What has followed has been a series of reports indicating that while the economy is still on its feet, hiring is decelerating, the manufacturing sector is fading further into contraction, and it’s time for the Fed to start cutting before it risks overdoing its inflation fight and dragging the economy into recession.

The latest bad news came Thursday when payrolls processing firm ADP put August private job growth at just 99,000, the smallest gain since January 2021.

Contemplating the Fed’s next move

“If they’re too aggressive for too long a period of time, without easing on monetary policy, this could lead to the giant ‘R’ and we don’t even want to say the word,” Santangelo said, referring to “recession.” “If God forbid this does lead to an economic downturn, all fingers are going to point toward the Fed.”
Markets consequently are expecting the Fed to lower benchmark rates by at least a quarter percentage point when its next meeting concludes Sept. 18, with the possibility rising of a half-point reduction. The Fed hasn’t reduced its benchmark rate by half a point since the emergency cuts during the early Covid days.
Traders are pricing in a succession of cuts that would shave about 2.25 percentage points off the fed funds rate through 2025, futures contracts show. The benchmark overnight borrowing rate is currently targeted in a range between 5.25%-5.5%.
Such an aggressive easing posture would indicate not merely an effort to normalize rates from their 23-year high but also reflect a deeper economic pullback. In the more immediate term, though, the move lower would be targeted more at a labor market still feeling aftershocks from the Covid pandemic.
Monster job search data is still heavily tilted toward health care-related positions, which have flourished in the current era, while the most common search terms are “work from home,” “part time” and “remote,” reflecting the move to a hybrid environment.
Santangelo said there also is still a substantial skills gap in the labor market, despite a sharp narrowing in the gulf between open jobs and available workers, which has contracted to about 1.1 to 1 from 2 to 1 a couple years ago.
“The jobs that are being created are not necessarily suited for the people who are getting laid off. We still have a huge skills gap. The easiest place to see that is health care,” he said. “The No.1 thing that job seekers are looking for is more flexibility. There’s that kind of gap between employers and job seekers also.”

Worries from job seekers

Workers in turn are getting more pessimistic about the state of play in the labor market.
The Zeta Economic Index, which uses artificial intelligence to track various economic metrics, is showing that concerns about jobs are accelerating — even though the broader economy is still performing well.
A measure of job market sentiment fell 1% in August and is down 4.6% from a year ago, Zeta figures show. The gauge’s “new mover index” dropped 9.9% on the month, reflecting worries over job stability.
“Despite a resilient economy … job market concerns persist. The job sentiment dip, paired with the mixed bag of consumer behavior, signals an ongoing caution in the workforce,” said David Steinberg, co-founder and chairman of Zeta Global, which compiles the index. “As the economy shows signs of a ‘soft landing,’ the persistent caution regarding job stability continues to temper broader economic optimism.”
The Zeta data mirrors a recent Conference Board survey, which reflected a sharp narrowing of the gap between respondents saying jobs were easy to find as opposed to hard to get.
Markets also will be watching the wage component of Friday’s report, though that has become less of an issue lately as inflation has moderated.
The consensus is for average hourly earnings to post a 0.3% increase on the month and a 3.7% year-over-year move, both 0.1 percentage point higher than July.

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