Stock Markets
Fed rate cut debate to heat up as US job market cools
By Ann Saphir
(Reuters) -Federal Reserve policymakers got more evidence of U.S. labor-market cooling on Friday that could boost their confidence they are winning their fight on inflation, and open the path to a more active debate on interest-rate cuts when they next meet in late July.
The Labor Department report showing a rise in unemployment and a decline in job creation is just the latest in a string of recent data offering more evidence of slowing than what U.S. central bankers had in hand at their June meeting.
At that time, many of them felt inflation progress was so lacking and the economy still so strong that they would likely cut rates only once this year, if at all. Since then, the data has marched in the opposite direction. A couple of inflation reports have shown prices did not rise at all from April to May; other reports have signaled a slump in services and manufacturing activity and rising job openings and layoffs.
Friday’s job report did not show big cracks in the labor market – indeed, job gains in June, at 206,000, outpaced economists’ expectations.
But the unemployment rate rose to 4.1%, and large revisions to prior-month estimates of job creation meant the average monthly payroll gain over the most recent three months has downshifted to 177,000.
That’s below the 200,000-a-month gain that Fed Governor Lisa Cook recently estimated the economy now needs just to keep up with immigration and other increases to the population.
Average hourly earnings were up 3.9% from a year earlier, and 0.3% from a month earlier, Friday’s report showed. That puts annualized wage growth for the last three months at about 3.6%, nearing a pace consistent with the Fed’s 2% inflation objective.
U.S. central bankers meeting July 30-31 are not expected to change their policy rate from the 5.25%-5.5% range it has been in since last July.
But the new data, which suggests the labor market is nearing a healthier balance, could put a rate cut at the following meeting in their sights.
“Overall, a moderation in payrolls in Q2 coupled with a rise in the unemployment rate and a slower growth path suggested by recent data bolster the case for rate cuts this year,” said Rubeela Farooqi, chief U.S. economist of High Frequency Economics. “We think the Fed could certainly start the discussion about cutting rates at the upcoming FOMC meeting, and lower the policy rate in September, if the data continue to show moderation.”
Fed policymakers at their June meeting signaled they see just one interest-rate cut this year, a forecast that pointed to a December start to any policy easing.
Fed Chair Jerome Powell said they would need to be confident inflation is heading to their 2% goal before cutting rates.
He also said any unexpected weakening in the labor market could also trigger a rate cut.
The increase in the unemployment rate last month from 4% still leaves that widely used gauge of labor-market health below levels historically associated with a downturn.
But the rising rate, which was 3.7% in January and 3.5% last July, paints an economy on a more fragile footing than the raw number might suggest. Unless it declines in July, it would trigger what’s known as the Sahm rule, an indicator for recession.
And while the post-pandemic economy has repeatedly bucked expectations and undercut long-held correlations, analysts are wary.
“We now have definitive evidence of U.S. labor market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers ‘more confidence’ that consumer inflation will soon return to the 2% target on a sustainable basis,” said BMO Chief U.S. Economist Scott Anderson.
Powell is slated to address Congress on Tuesday and Wednesday, and investors will be paying close attention to his views on the latest data and what it means for the Fed’s policy path.
On Thursday investors will get the June reading on the consumer price index, which last month showed inflation had resumed its cooling trend.
Financial markets are pricing in a 78% chance of a September rate cut, up from about 72% before the June jobs report. Traders are also pricing in a second rate cut in December more firmly than previously.
Stock Markets
Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports
(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.
The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.
“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.
The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.
Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.
Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.
Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .
Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.
Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.
Stock Markets
Weakened Iran could pursue nuclear weapon, White House’s Sullivan says
By Simon Lewis (JO:)
(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.
Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.
Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.
“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.
Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.
Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.
“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.
Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.
Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”
“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.
Stock Markets
Ukraine says Russian general deliberately targeted Reuters staff in August missile strike
(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.
The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.
In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.
In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.
The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.
The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.
The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.
Reuters has not independently confirmed any of the SBU’s claims.
Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”
“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.
Reuters declined to comment further on the allegation that its staff were deliberately targeted.
The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.
“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.
Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.
The SBU statement gave some details about how the strike had occurred, according to its investigation.
“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.
The SBU did not identify the specific unit.
Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.
The remaining three members of the Reuters team escaped with minor cuts and scratches.
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