Economy

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In the note, JPMorgan economists discussed the weakening U.S. labor market, with recent data indicating a slowdown in employment gains and initial signs of labor shedding.This softening in labor demand, coupled with moderating wage inflation, suggests a reduction in labor market pressures. U.S. wage inflation is slowing in a manner not seen in other developed markets, aligning with sustained productivity gains to bring unit labor costs in line with the Federal Reserve’s inflation target.Economists argue that easing labor market conditions and the resulting reduction in inflationary pressures increase confidence that service price inflation will decline, supporting the case for a more significant policy adjustment from the Fed. They anticipate the Fed will lower policy rates by at least 100 basis points by the end of the year.Economists also note that while global activity data remains solid, there are emerging signs of caution within the private sector.“The latest business surveys suggest a loss of momentum in global manufacturing and in the Euro area, weak links in the expansion that we have expected to lift this year,” the note states.Despite these concerns, the underlying vulnerabilities typically associated with a recession, such as sustained profit margin compression or credit market stress, are not currently present.JPMorgan’s revised recession probability is based on the expectation that the Fed will respond to the shifting growth and inflation risks with an early easing cycle.“An early easing cycle that responds to shifting risks on growth and inflation—but not the realization of a recession—likely improves the outlook for growth looking to next year, economists explained.“While recognizing additional uncertainties related to the political backdrop, we have not altered our assessment of the probability of a recession by the end of next year, which remains at 45%.”Moreover, JPMorgan observes that the easing of labor market conditions and moderating wage inflation seen in the U.S. are not evident elsewhere.The bank believes that the impact of Fed policy changes on other economies is limited without a synchronized shift in fundamentals. As such, “there is a good chance that the shift away from gradualism we now expect from the Fed will not be reflected more broadly,” economists said. More

LONDON (Reuters) – Like thousands of Nigerians and millions of others across the developing world, higher fuel costs have irked Antonia Arosanwo. “I am angry,” the 46-year-old mother of five said at a bus stop in Lagos, the teeming commercial capital of Africa’s most populous nation. Her journey from Ojuelegba, a bustling suburb just 8 miles north of Lagos’s business district, has more than doubled in price to 700 naira (45 U.S. cents) since the government announced an end to fuel subsidies last year – allowing petrol prices to triple. Arosanwo’s anger mirrored that of thousands of other Nigerians, whose nationwide protests last week demanding protection from rocketing inflation, spreading hunger and dwindling jobs rattled the government. Nearly all had one core complaint: fuel prices. Across Africa – and a string of other emerging market nations – debt-laden governments trying to shed costly fuel subsidies are running headlong into angry populations reeling from years of increasing living costs. Egypt and Malaysia this year boosted prices to cut subsidy spending, while Bolivia’s President Luis Arce, who fended off an attempted coup in June, called this week for a referendum on fuel subsidies. The government expects gasoline and diesel subsidies to cost Bolivia some $2 billion this year.Arce, like others, faces dollar shortages and a flagging economy.”Difficult moments require firm, mature, thoughtful decisions and human beings who do not falter in the face of adversity, and this is precisely a moment of this nature,” Arce said in a speech in the Bolivian city of Sucre. But the smoke of protests is clouding governments’ hopes of ending fuel subsidies, as the same stagnating economic growth that’s punching a hole in budgets is making life harder for citizens. Leaders in Angola and Senegal are, like Nigeria, struggling to cut them.”In a situation of cost-of-living crisis and high inflation, (more expensive fuel) becomes even unbearable,” said Bismarck Rewane, chief executive of the Financial Derivatives Co in Lagos and a government economics adviser.Removing the subsidy, he said, must be phased in according to two principles – “one, what the government can afford (and) two, what the people can afford?”INTO THE FIRENearly every nation on earth has some form of energy subsidy, costs of which hit a record $7 trillion in 2022 – a whopping 7.1% of GDP – according to the International Monetary Fund. Experts slam subsidies as blunt-force tools that give more to wealthy car owners than to the poor – and that they are prone to corruption and bad for the environment. The biggest spenders, according to the International Energy Agency, are Russia, Iran, China and Saudi Arabia – countries that can, broadly, afford the costs. But for emerging countries, saddled with costly debt and still-high global interest rates, financing these is more punishing.”It’s acute now, because countries have fiscal problems,” said Chris Celio, senior economist and strategist with ProMeritum Investment Management. “And so then the question is, why do you have fiscal problems? Well, one reason is because you have this hole in your budget going to something that’s inefficient … and you’re having problems financing it.” Nigeria’s President Bola Tinubu announced an end to subsidies after taking office last year. But when pump prices tripled, he froze them. And when the naira currency crashed, subsidies crept back – despite higher pump prices.UNPOPULAR POLICIES Now, leaders mulling further price hikes are also nervously eyeing revolts elsewhere over unpopular economic policies. Bangladesh’s prime minister resigned after hundreds died protesting job quota changes, while Kenya’s president fired his cabinet and backtracked on tax hikes after deadly demonstrations in June.”If there was a reluctance to increase fuel prices prior to the events in Kenya … that reluctance, if anything, is probably even higher,” said Goldman Sachs senior economist Andrew Matheny. “Politicians around the world are tuned to this cost of living crisis … that probably does limit the willingness of policymakers to undertake reforms that, at least in the short term, might prove to be unpopular.”That could further strain budgets. Nigeria’s subsidies cost 3% of GDP, Matheny said, and its oil company owes billions for imports. Senegal’s electricity and fuel subsidies hit 3.3% of GDP last year, while Angola’s 1.9 trillion kwanza ($2.1 billion) subsidy bill in 2022 was more than 40% of spending on social programmes, according to the IMF. Angola has pledged to scrap fuel-price supports by the end of next year, though five people died in protests over price hikes last year.Celio of ProMeritum said a sustainable budget is key to attracting the investor cash these countries need. In a post on X, Tinubu appealed for patience and promised social support, such as access to affordable education. “I urge you all to look beyond the present temporary pain and aim at the larger picture,” he said, without commenting on whether he would further hike fuel costs. But Rewane noted that “shock therapy” of higher fuel costs could have even greater consequences for Nigeria than Kenya’s proposed tax hikes did. Arosanwo, for one, questioned why she should “stop talking”, or protesting, with doubled transportation costs and as she struggles to feed her family.”The government has a political will,” Rewane said. “But … time is something that is not a friend of everybody right now.” ($1 = 1,550.0000 naira)($1 = 889.5000 kwanzas) More

Fears of a U.S. recession following a weaker-than-expected July jobs report and an unwinding of yen-funded carry trades sparked a sharp sell-off in global equities earlier this week.Markets are currently pricing a 100% chance of a 50 basis points interest rate cut in September by the Federal Reserve, according to CME’s FedWatch tool.”U.S. wage inflation is now slowing in a manner not seen in other DM economies,” economists at the Wall Street brokerage, said in a note on Wednesday.”Easing labor market conditions increase confidence both that service price inflation will move lower and that the Fed’s current policy stance is restrictive,” they added.J.P.Morgan expects the Fed to “break from gradualism” stance and lower interest rates by at least 100 bps through the end of the year.Goldman Sachs raised its probability of the U.S. tipping into a recession by 10 percentage points to 25% for the next 12 months, the brokerage said in a client note on Sunday. More

U.S. stock futures edged lower Thursday, stabilizing to a degree following several dramatic swings in recent days. By 04:15 ET (08:15 GMT), the Dow futures contract was 100 points, or 0.3%, lower, S&P 500 futures dropped 15 points, or 0.3%, and Nasdaq 100 futures fell by 32 points, or 0.2%.The Wall Street indices closed lower Wednesday, unable to hold an early rally, the blue chip Dow Jones Industrial Average closing over 200 points, or 0.6%, lower, while both the broad-based S&P 500 dropped 0.8% and the tech-heavy Nasdaq Composite fell 1.1%.There are more earnings to digest Thursday, including from drugmaker Eli Lilly (NYSE:LLY) and fashion retailer Under Armour (NYSE:UA).Additionally, Bumble (NASDAQ:BMBL) stock slumped 30% premarket after the online dating agency cut its annual revenue growth forecast, sparking worries about its growth plans.Warner Bros Discovery (NASDAQ:WBD) stock fell almost 10% premarket after the entertainment giant reported a quarterly net loss of $10 billion, announcing it has written down the value of its traditional television networks by $9.1bn, a dramatic recognition of how fast streaming is eroding the cable business model.Worries about a U.S. hard landing, after Friday’s weak nonfarm payrolls release, sparked the sharp selloff on Wall Street.With this in mind, the macro spotlight is squarely on the weekly jobless claims figures out of the U.S. later in the day, with economists expecting initial jobless claims to total 241,000 last week, a small reduction from the prior week’s 249,000.That release showed the number of Americans filing new applications for unemployment benefits increased to an 11-month high last week, adding to fears that the labor market was cooling quickly.The report from the Labor Department on Thursday also showed the number of people on jobless rolls swelling in mid-July to the highest level since late 2021. Federal Reserve Chair Jerome Powell said last week that while he viewed the changes in the labor market as “broadly consistent with a normalization process,” policymakers were “closely monitoring to see whether it starts to show signs that it’s more than that.”One of the main contributors to the market turmoil of the last few days has been the unwinding of the global carry trade – which involves investors borrowing money in a place where interest rates are low and using it to invest elsewhere in assets that generate a higher return.For years this has widely involved the Japanese yen, as the Bank of Japan has held interest rates near zero in an attempt to stimulate a stagnant economy.However, the BOJ raised interest rates last week, while rates are already falling in a number of other regions while the Federal Reserve has signaled that it may join this club next month.Analysts at JPMorgan said in a note that the risk-reward for global carry is low due to U.S. elections and potential repricing of funders on lower U.S. rates and rates momentum is expected to turn more significantly against G10 carry which favors the rotation to value.It added carry baskets have already suffered a significant drawdown following the tech sell-off, and the spot component of the global carry basket suggests that 75% of carry trades have been removed. Apple (NASDAQ:AAPL) expressed optimism over its iPhone sales going forward at its latest quarterly release, as it expects additional features based on artificial intelligence to attract buyers.The tech giant is expected to launch this fall what analysts have called the biggest software upgrade for the iPhone, including artificial intelligence features – known as Apple Intelligence.Apple could charge its users up to $20 for its advanced artificial intelligence features, analysts told CNBC, as the company looks to boost the growth of its lucrative services business.Apple’s services division brought in $24.2 billion in the June quarter, making it unique as many other hardware firms have not managed to monetize software.It is not unusual for technology firms to charge for their AI offerings. OpenAI, for example, has a subscription fee for more advanced ChatGPT features and Microsoft (NASDAQ:MSFT) charges for its AI Copilot tool.Crude prices retreated Thursday, on course to end a two-day winning streak, as dismal economic data from top oil importer China reignited concerns surrounding global demand.By 04:15 ET, the U.S. crude futures (WTI) dropped 0.1% to $75.19 a barrel, while the Brent contract fell 0.2% to $78.21 a barrel.Data released earlier Thursday showed China imported around 10 million barrels of oil in July, down 12% from June and 3% lower than the same period last year.Concerns over Chinese growth, coupled with fears of a U.S. recession, have weighed heavily on oil prices in recent sessions. Both benchmarks had gained around 3% over the last two sessions, bouncing off near-2024 lows, helped by the simmering tensions in the Middle East.Additionally, crude inventories in the United States, the world’s largest oil consumer, fell 3.7 million barrels, data showed, marking a sixth straight weekly decline to six-month lows.  More

TOKYO (Reuters) – The Bank of Japan managed to calm investor nerves during global market turmoil this week by reversing a calibrated strategy to communicate steady interest-rate rises, but the flip-flop tests the bank’s resolve to phase out decades of radical stimulus.If the central bank, scarred by missteps and reversals going back a quarter century, is at the mercy of markets, it may be constrained in moving away from what it has called excessive support for the world’s fourth-biggest economy.The yen spiked and Tokyo shares plummeted last week as the BOJ unexpectedly raised its policy rate from essentially zero to the highest in 15 years and Governor Kazuo Ueda signalled further steady rate hikes, a path the central bank had been trying to suggest for months.Ueda’s influential deputy helped stabilise sentiment on Wednesday by saying the BOJ would not raise rates when markets were unstable, but confusion resumed on Thursday, when a summary of the discussion at the bank’s July 30-31 meeting showed policymakers focussed on a series of rate hikes to keep inflation from overshooting.”The BOJ hiked interest rates because it didn’t like the weak yen. Now it appears to be suggesting a pause in rate hikes because it doesn’t like stocks falling,” said Takuya Kanda, an analyst at Gaitame.com Research Institute. “If the BOJ is watching markets so much in setting policy, there’s a chance it won’t be able to raise rates that much.”The Japanese currency skyrocketed on Monday and the Nikkei stock average plunged the most since 1987 after the BOJ raised its short-term policy target to 0.25% from a zero-to-0.1% range, followed by Ueda’s hawkish comments. Investors were also rattled by signs the Federal Reserve would soon cut rates to buoy a slowing U.S. economy.BOJ Deputy Governor Shinichi Uchida said on Wednesday the rout was cause for pause, as it might affect the bank’s inflation projections and rate trajectory.”As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” he said, adding that Japan could afford to wait on hikes as inflation remained moderate.While steadying markets, Uchida’s about-face “also ended up magnifying market swings”, said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “It’s undesirable for BOJ communication to cause so much volatility.”DEJA VUNow, said economist Yoshimasa Maruyama at SMBC Nikko Securities, “the chance of a near-term rate hike is gone. In fact, the chance of another hike this year has diminished significantly.”The central bank did not respond to a request for comment on Thursday to criticisms that it is responding to market moves rather than data in setting policy. Uchida on Wednesday insisted the BOJ was focussed on the economy. “If the market volatility changes our projection, risks and view on the likelihood of hitting our price target, then market moves would affect our decision,” Uchida told a press conference after addressing business leaders. “Obviously, our goal is to achieve price stability and through that, healthy economic development. We’ll pay heed to economic developments in setting policy.”Japan’s ruling and major opposition parties have agreed to summon Ueda to a special parliament session this month to explain the rate hike.In a rare public chiding, ruling Liberal Democratic Party executive and former finance ministry official Satsuki Katayama urged the BOJ on Wednesday to communicate better with markets, saying the LDP will likely discuss whether the July hike was a mistake.The BOJ has been here before.It raised rates from zero in August 2000, ending a then-novel experiment despite government objections. Ueda, then a policy board member, voted against ending zero rates.Next, the U.S. tech bubble burst, hitting Japan’s export-reliant economy. Eight months later the BOJ reversed course, rolling out a new experiment, quantitative easing: flooding the market with yen to support the economy and fight deflation.By February 2007 it had raised rates to 0.5% when the global financial crisis pushed Japan into recession and forced the bank to cut rates back near zero.In both cases, the BOJ drew fierce political criticism for phasing out stimulus too hastily.’PREOCCUPIED’ WITH ANGER OVER YENThis time few politicians are demanding the BOJ loosen monetary policy. Days before the July hike, Prime Minister Fumio Kishida said the BOJ’s policy normalisation would support economic revitalisation.Shigeru Ishiba, a leading candidate seeking to replace Kishida in a September LDP leadership election, told Reuters he welcomed the BOJ’s plan to gradually raise interest rates.Politicians, who had long pressured the BOJ to ease policy to weaken a soaring yen to help exporters, have switched in the past two years as the currency’s falls 38-year lows threatened to push inflation above the bank’s 2% target.The BOJ may pay a price if its hawkish turn is seen as succumbing to government pressure, some analysts say.”Recent data all pointed to a weak economy, so it didn’t make logical sense for the BOJ to turn so hawkish on the future rate hike path,” said former BOJ official Nobuyasu Atago. “Its communication with markets could have been better.”Complicating the BOJ’s task, it would be raising rates just as the Fed likely starts cutting, potentially heightening volatility in the dollar/yen exchange rate and hurting Japanese business sentiment.The BOJ has historically avoided moving in the opposition direction to the Fed for fear of hurting exports and causing disorderly market moves, said former BOJ board member Takahide Kiuchi.”This time, the BOJ may have been too preoccupied with public and political anger over excessive yen falls,” he said. “The very timing of the BOJ’s exit makes it extremely challenging to pull off in the first place.” More

MUMBAI (Reuters) -The Reserve Bank of India (RBI) kept its key interest rate unchanged on Thursday, as widely expected, retaining its focus on bringing inflation down even as global market volatility left other major central banks poised to ease policy. The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a ninth straight policy meeting.Four out of six MPC members voted in favour of the rate decision.The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%. The monetary policy stance was retained at ‘withdrawal of accommodation’ to aid the MPC’s focus on bringing inflation towards the target, with four of the six members voting in its favour.All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.It is important for monetary policy to stay the course in bringing inflation down towards its 4% medium term target, RBI Governor Shaktikanta Das said, adding that India’s food inflation remains “stubbornly” high.”Growth remains resilient, inflation has been trending downward and we have made progress in achieving price stability, but we have more distance to cover,” Das said.Ensuring price stability is important for sustainable growth, Das said.”With growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. “We continue to expect scope for change in stance in the October policy with rate cuts beginning from December.”After the RBI maintained its hawkish policy stance, Indian shares fell but recovered later to trade flat. The 10-year benchmark bond yield IN071034G=CC > rose slightly to 6.872% from 6.8678% before the policy decision, while the Indian rupee was nearly flat at 83.93 against the dollar.Investors were hopeful the RBI will soften its overall stance on inflation following the recent souring of global market sentiment and firmer expectations the Federal Reserve will cut interest rates in September.Global equities and currencies tanked early this week as the Bank of Japan hiked rates to their highest levels since 2008 last week and fears of a U.S. recession rose on the back of weak employment numbers. While Indian equities fared better, the rupee fell to all-time lows, prompting central bank intervention.There are significant challenges to medium term global growth, Das said in his policy statement, while acknowledging recent market volatility and the move towards rate cuts by several central banks. “We will remain watchful of all incoming domestic and external data,” Das said at a press conference, giving no hint that global factors would alter the path of India’s monetary policy.”Policy guidance reinforced that domestic considerations will be prioritised, despite a sharp buildup in rate cut pricing for the U.S. Federal Reserve,” said Radhika Rao, senior economist at DBS Bank in Singapore.GROWTH, INFLATION FORECASTS UNCHANGED The RBI kept its growth forecast for fiscal 2025 unchanged at 7.2%, slower that the 8.2% expansion in fiscal 2024.Domestic economic activity remains resilient, Das said. The central bank also retained its inflation forecast at 4.5% in the current year.The annual retail inflation rate rose for the first time in five months in June, climbing above 5% on the back of a jump in food prices. Commenting on a decline in core inflation, which excludes volatile food and energy prices, Das said: “The public at large understands inflation more in terms of food inflation than the other components of headline inflation.” “Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably.” More

TOKYO (Reuters) – Some Bank of Japan board members called for the need to keep raising interest rates with one saying they should eventually be increased to at least around 1%, a summary of opinions voiced at the bank’s July policy meeting showed on Thursday.At the July 30-31 meeting, the BOJ raised its short-term policy target to 0.25% from a range of 0% to 0.1% and released a detailed plan on how to taper its huge asset buying in another landmark shift away from a decade-long stimulus programme.Some in the nine-member board said inflation-adjusted real interest rates will remain very low even after the rate hike, which meant the BOJ would continue to support the economy with loose monetary policy, the summary showed.”The BOJ must proceed with further adjustment of the degree of monetary accommodation as appropriate” even after hiking rates in July if companies continue to raise prices, wages and ramp up capital expenditure, one member was quoted as saying.Another opinion also called on the BOJ to keep raising interest rates in a “timely and gradual manner”, as Japan’s neutral rate – or the level of borrowing costs that neither cools nor overheats the economy – seems to be at least around 1%, the summary showed.The BOJ does not issue an official estimate of the neutral rate, though analysts see it at anywhere between 1% and 1.5%. More