Economy Holds Up to Fed Rate Hikes; deficit rises but inflation falls; Hiring Pace Slowing – Today at 07:20 | MarketScreener

Economy Holds Up to Fed Rate Hikes; deficit rises but inflation falls; Shot tempo slows down by Michael Maloney

Good day. There’s a saying that economic prosperity doesn’t die of old age: it’s going to be murdered by the Federal Reserve. If that’s the case, then the US economy is outperforming its potential attacker this year. The gap between federal spending and revenue is widening, but not for reasons that stimulate the economy. And numbers from Friday’s jobs report keep the Fed on course to hold rates steady at its meeting this month, but won’t resolve the debate over whether to raise rates again in November or December.

Now for today’s news and analysis.

Breaking News: Resilient US economy defies expectations

Robust hiring and resilient consumer spending are the latest evidence that the impact of the pandemic and unprecedented government policy responses have made the economy surprisingly resilient to the Fed’s most aggressive rate hikes in 40 years.

Do higher deficits cause inflation? Not this year

Something strange is happening with the federal budget this year. The deficit has exploded, more than doubling in the first ten months of the fiscal year compared to the same period last year. Such an increase can typically be expected to stimulate growth and thus inflation. But inflation has steadily declined over the same period.

Work is a terrible indicator of inflation, but nobody wants to admit it

In a world of volatile commodity prices, congested supply chains and government stimulus packages, tight labor markets seem to be the only guide central banks really trust in pushing inflation below 2%. Unfortunately, it’s a compass that rarely points north, writes Jon Sindreu for Heard on the Street.

Job growth in the US economy slowed in the summer months

Hiring slowed this summer and unemployment rose in August, suggesting the job market is cooling amid high interest rates. Other data shows that the broader economy remains strong, with consumer spending rising sharply this summer and inflation easing.

Hurricanes and high yield bonds converge on Wall Street

The rising costs of extreme weather events are accelerating the catastrophe bond market. Developed in the mid-1990s after Hurricane Andrew and the Northridge earthquake, these bonds allow insurers, corporations and even governments to offload some of the risk of a catastrophe to investors.

After the summer rally, investors are nervous about the fall

The bulls in the stock markets are nervous at the start of September. The S&P 500 is up 18% so far this year, even after posting its first monthly decline since February in August. The benchmark index rallied in the last week of the month, ending close to its monthly highs for the sixth straight month. Now investors are wondering if stocks can continue to defy expectations and hold on to this year’s gains.

Major developments around the world China’s Country Garden makes overdue dollar bond payments

Troubled Chinese real estate giant Country Garden Holdings made two overdue bond coupon payments just before a 30-day grace period, averting an international debt default that many investors believed was inevitable.

China establishes a government agency to support the private sector. Italy wants to exit China’s Belt and Road Initiative. Russia will not rejoin the grain deal with Ukraine until the West complies with demands

President Vladimir Putin said Russia would not rejoin a deal allowing global transportation of Ukrainian grain until the West heeded its demands to ease Russian agricultural exports after ditching a deal that compromised the security of a crucial part of the global food supply chain guaranteed.

Western officials plan to warn UAE against trade with Russia Russian-led theatrical performances take center stage at United Nations RBA stands for a third month; Option to move on still on the table

The Reserve Bank of Australia kept its official interest rate unchanged for the third straight month but remained cautious on the outlook, saying further rate hikes were still possible as inflation remained too high.

Financial regulation Private equity and hedge funds are suing the SEC to thwart regulation

A coalition representing the largest private equity and hedge funds has sued the Securities and Exchange Commission to block new rules designed to give investors more transparency and better terms from money managers.

Research Central banks should admit mistakes to regain confidence, says Lagarde

Central banks should better address their mistakes and explain the uncertainty they face and the difficulty of policy-making in the current economic climate, European Central Bank President Christine Lagarde said in a speech. “Right now it is important for us to acknowledge that, like other central banks, we have underestimated both the dynamics of inflation and its persistence,” she told a seminar in London on Monday. Central banks should demonstrate more “humility” in their confidence-enhancing communications, including being “open about the limits of our knowledge, the areas where we have failed and what we are doing about it”, says Lagarde. Policymakers have faced crises over the past decade that have eroded public confidence in the way the macroeconomic environment is being managed, she added.

-Ed Frankl, Dow Jones Newswires

Forward Guidance Tuesday (all times ET)

8:30 a.m.: Schnabel chairs the panel at the ECB legal conference

10:00 a.m.: US manufacturer shipments, inventories and orders for July

10:30 a.m.: De Guindos from the European Central Bank chairs the panel of the ECB legal conference

Wednesday

8:30 am US trading for July; Canada trading for July

9:15 am: Bank of England officials speak at a hearing on financial stability and monetary policy reports

10 am: Bank of Canada interest rate decision; ISM Report on Business Services PMI

2 p.m.: Federal Reserve publishes Beige Book report

3 p.m.: Logan from the Dallas Fed will moderate the community listening session in Lubbock, Texas

Commentary Jobs or inflation: which cools faster?

The job market is cooling and inflation is also cooling. This is welcome news for Federal Reserve policymakers, but the outlook for the economy is still bleak, writes Justin Lahart of the WSJ.

China’s neighbors shouldn’t be cheering the downturn

China’s economic woes have been a boon to other Asian markets so far. But if the world’s second-largest economy continues to struggle, things could look worse for it too, writes Jacky Wong of the WSJ.

Basis points The average US equity fund fell 2.6% in August, according to data from Refinitiv Lipper, taking year-to-date gains to nearly 13.7%. A private indicator of China’s services activity fell to its lowest level in eight months, suggesting service sector growth may have lost momentum. The Caixin China Services PMI fell to 51.8 in August from 54.1 in July, Caixin Media Co. and S&P Global said on Tuesday. (Dow Jones Newswires) South Korea’s headline inflation accelerated faster-than-expected in August, rebounding after six straight months of slowdown. (DJN) Eurozone economic output contracted more than originally thought in August, at the fastest rate since November 2020, data from a purchasing managers’ survey showed on Tuesday, another signal of upcoming challenges facing the bloc’s economy. (DJN) Germany’s trade surplus narrowed more-than-expected in July, reflecting weaker global demand for the country’s goods as signs of an economic slowdown prevail. The country’s adjusted trade surplus fell to 15.9 billion euros ($17.13 billion) in July, compared with 18.7 billion euros in June, data from the country’s statistics agency Destatis showed on Monday. (DJN) UK retail sales rose in August, helped by improving consumer confidence, according to the latest Sales Monitor report from the British Retail Consortium, released on Tuesday. (DJN) feedback loop

This newsletter was compiled by Michael Maloney in New York and Perry Cleveland-Peck in Barcelona.

Send us your tips, suggestions and feedback. Write to:

James Christie, Nell Henderson, Nick Timiraos, Tom Fairless, Megumi Fujikawa, Perry Cleveland-Peck [mailto:perry.clevel[email protected]]Nihad Ahmed, Michael Maloney, and Paul Kiernan

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09-05-23 0719ET