Global Conflict Playing Role in Higher Interest Rates; An Unexpected Boost From the Treasury

Global Conflict Playing Role in Higher Interest Rates; An Unexpected Boost From the Treasury By Michael Maloney

Good day. In times of war and conflict, investors have long piled into Treasury bonds and other safe-haven assets, bringing interest rates down. But in today's disintegrating geopolitical environment, where hot spots around the world threaten to upend the supply of key commodities, it's becoming harder for investors to book their flights to safety. That helps explain why bond yields have risen recently-and may stay high. Meanwhile, the Treasury Department handed investors a happy surprise last week. Now the question is how far they can run with it. And job growth slowed sharply last month, a sign the U.S. economy is cooling this fall after a torrid summer.

Now on to today's news and analysis.

Top News Add Global Conflict to the Forces Keeping Interest Rates High

For the Federal Reserve, geopolitical anxieties may paradoxically help in the short term . The rise in the term premium, by adding to borrowing costs, allowed it to skip raising interest rates this past week. In the longer term, though, inflation shocks from overseas are more likely to force it to raise interest rates.

Markets Got an Unexpected Boost From Washington

Stocks and bonds both staged rallies last week , getting a boost when the Treasury increased the size of longer-term debt auctions by a smaller amount than many had expected. By the end of the week, the yield on the 10-year U.S. Treasury note-the source of so much recent anxiety in markets-had fallen all the way back down to 4.557% after briefly topping 5% on Oct. 23. Yields were also pulled lower by soft economic data and hints from the Fed that it likely won't raise interest rates again this year. But it was the Treasury move that many saw as the crucial catalyst.

Pro Take: Top-Tier Immigrant Workers Make More Than Their U.S.-Born Peers, Fed Study Shows By Bob Fernandez

Foreign-born workers account for nearly one-in-five of the top 1% wage earners in the U.S., new research shows. Overseas-born workers declined slightly as a share of the U.S. workforce between 2005 and 2019. Still, their presence in the top 1% of wage-earners climbed to 19.7% from 13.4%, according to research recently published by the Federal Reserve Bank of Minneapolis. Read more .

U.S. Economy Sharp U.S. Hiring Slowdown Signals Cooling Economy Ahead

Employers added 150,000 jobs in October, half the prior month's gain and the smallest monthly increase since June, the Labor Department said Friday. The unemployment rate rose to 3.9%, up a half-point since April, and wage growth slowed.

The Improbably Strong Economy The New Headache for Bosses: Employees Aren't Quitting Labor Shortages, Remote Work Fuel Job Gains for Disabled Workers

Nearly 1.8 million people with a disability have joined the labor force since just before the pandemic hit the U.S., a 28% increase, according to the Labor Department. The country's total workforce grew 1% in the same period.

Breaking Down the Best Earnings Quarter in a Year

Earnings for the nation's biggest companies are poised to show their first collective increase in a year , helped in part by strong consumer spending this summer. The members of the S&P 500 are on pace to collectively report a 3.7% rise in earnings for the year's third quarter, the first such increase since the year-ago third quarter. Revenue is on track to grow 2.3% from a year ago, according to FactSet.

Fed's Bostic Sees Inflation Reaching Target in Second Half of 2024

Atlanta Fed President Raphael Bostic said that his own projection is that inflation could come down to the central bank's 2% target in the next eight to 10 months . Asked in an interview on Bloomberg Television whether he had some idea of how long it would take to get inflation down to that target rate, Bostic replied: "I would say it's going to be in the second half of next year." (MarketWatch)

Fed's Barkin Says October Data Shows Gradual Cooling of Job Market

The October employment report showed a "gradual lessening" of the job market that would be welcome by those who want the Fed to stop raising interest rates, said Richmond Fed President Tom Barkin. (MarketWatch)

Key Developments Around the World BOJ Gov Suggests Low Possibility of Negative Rates Ending This Year

The likelihood that the Bank of Japan will end negative interest rates in the immediate term is low , Gov. Kazuo Ueda suggested Monday, given uncertainty over the outlook for consumer prices and wages.

Foreign Firms Pull Billions in Earnings Out of China

For years, foreign companies plowed the profits they made in China back into China, using the cash to finance new hiring and investment. Now, as growth slows and tensions between China and the U.S. rise, they are pulling those profits out .

China Tries to Lure Its Unemployed Youth to the Countryside

With youth unemployment recently hitting record levels-and concern deepening about the hollowing out of rural China-Xi Jinping is calling on students and college graduates to consider giving up city life for the countryside.

How Russia Games Oil Sanctions for Big Profits

A Western price cap on Russian oil meant to curb Russia's war spending is losing its punch as Moscow has found ways to circumvent the sanctions, moving oil on a fleet of aging tankers on which the restrictions have limited traction.

Saudi Arabia to Extend 1 Million-Barrel-a-Day Oil Production Cut

Saudi Arabia confirmed it would extend a production cut of 1 million barrels a day, which first took effect in July, through the end of December. Output would be around 9 million barrels a day in December. (MarketWatch)

Those Who Make Your Clothes Want Higher Pay. Who Should Pay Up?

The armies of people who make clothes for Western brands-some of the lowest-paid factory workers in the world-are protesting for better wages, a fresh sign that the era of ultracheap labor is increasingly under strain .

Financial Regulation Roundup Sam Bankman-Fried Verdict Reflects Crypto's Broken Dreams

Sam Bankman-Fried is gone. And crypto is back to its favorite activity: a wild speculative rally . The FTX founder's trial featured a parade of witnesses detailing a multibillion-dollar fraud at the heart of the crypto market. None of it dented the enthusiasm of crypto investors. Meanwhile, the ambitions of cryptocurrency advocates to remake the traditional financial system remain a dream.

China Unleashes Crackdown on 'Pig Butchering'

In recent months, China has unleashed its most aggressive effort to crack down on the proliferation of scam mills , reaching beyond its territory and netting thousands of people in mass arrests. Its main target is a notorious stretch of its border with Myanmar controlled by narcotics traffickers and warlords.

Singapore's DBS Takes a Hit from Money-Laundering Affair

Singapore's largest bank, DBS, is financially exposed to the tune of around S$100 million (US$73.8 million) to a recent money-laundering scandal in the city-state, Chief Executive Piyush Gupta said Monday.

Forward Guidance Thursday (all times ET)

8:30 a.m.: U.S. weekly jobless claims

3:25 p.m.: Speech by Bank of Canada's Beaudry to Greater Victoria Chamber of Commerce

Friday

8:30 a.m.: Canada labor force survey for May

Commentary The Big Problem With Government Debt Isn't What You Think

Investors are worried that Western governments are issuing more bonds than investors can buy. Whether the system that transacts in those bonds can bear the load could be a much more urgent issue , Jon Sindreu writes.

Basis Points Employment in Canada was little changed in October, allowing the jobless rate to push to its highest level since January 2022. Statistics Canada reported Friday that Canada's economy added a net 17,500 jobs for the month, after employment increased 63,800 in September. (MarketWatch) An ISM barometer of U.S. business conditions at service-oriented companies such as retailers and restaurants slowed in October to five-month low of 51.8%, suggesting the economy has softened. (MarketWatch) Warren Buffett's Berkshire Hathaway ended the third quarter with a record cash pile and reported a deeper net loss due to the sputtering stock market rally. The famed investor's Omaha, Neb., company wrapped up the third quarter with a record $157.2 billion in cash and equivalents. New orders at German factories rose slightly in September, beating expectations. Manufacturing orders were 0.2% higher than a month before, according to seasonally and calendar adjusted-data released Monday by German statistics office Destatis. Orders had been expected to slip 1.5%, according to economists polled by The Wall Street Journal. Orders in August had risen 1.9%, Destatis said, revising down a previous estimate of a 3.9% rise. (DJN) Feedback Loop

This newsletter was compiled by Michael Maloney in New York and Nihad Ahmed in Barcelona.

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11-06-23 0715ET