Here’s how the Fed reads today’s jobs report

There are currently about two jobs available for every unemployed person, and as a result, employers have had to raise wages to attract suitable candidates.

That sounds like a good thing—and for Americans who are facing higher prices on everything from groceries to rent. But the Federal Reserve isn’t happy about that. In order to fight inflation, you need to cool the economy, and bigger salaries do the opposite. Companies can also pass on higher labor costs to consumers, and that means higher prices.

If growth continues to accelerate, the central bank will have more reason to raise interest rates aggressively at its meeting later this month. But we are not out of the woods yet. Wage levels remain high for the year, up 5.2%.

Anita Markowska, chief financial economist at Jefferies, tells me that there are a number of factors driving higher prices – including supply chain and commodity pressures – but that wages are the dominant driver of future inflation. “Rising wages are causing a lot of inflation. Supply chain problems are expected to ease next year, but we still have this employment problem.”

She said the only way to reach the Fed’s 2% inflation target is to see wage growth slow sharply. An increase of 0.3% is not enough to slow down.

today’s report: The US unemployment rate grew to 3.7% in August, which was higher than expected. The economy added 315,000 jobs for the month, topping analyst estimates by 300,000 but it was a sign The lowest monthly gain since April 2021. Wage growth also eased to 0.3% per month. Wall Street expected a 0.4% increase.

The Federal Reserve is looking for flaming job growth to start calming down in its fight to ease inflation. The report lowered market expectations of a more aggressive rate hike at the Federal Reserve’s September meeting, sending stocks higher.

The numbers provided some relief from last month’s jobs report, which blew expectations out of the water. More than half a million jobs were created, the largest number in five months. Average hourly earnings grew half a percent month over month.

In the weeks following the July jobs announcement, Federal Reserve officials took a more hawkish stance, saying rate hikes would continue until inflation fell and warning of the coming economic “pain.”

Federal Reserve Chairman Jerome Powell cited the strength of the labor market as a reason for concern about inflation in his speech at Jackson Hole last week. “The labor market is particularly strong, but it is clearly unbalanced, with the demand for workers significantly exceeding the supply of available workers,” he said.

After the Fed’s last meeting in July, where the central bank raised interest rates by 75 basis points, Powell told me he was closely watching wage growth. His ultimate goal, he said, is to reduce inflation and achieve “a decline that does not require a significant increase in unemployment.” This is only achieved by slowing wage growth.

Takeaway: Wall Street is currently pricing in a 60% chance of a 75 basis point rate hike at the Federal Reserve’s September meeting. That’s down about 15 percentage points since Thursday, before the jobs report was released. But there is still a lot of uncertainty about the upcoming policy decision of the Federal Reserve. There’s a lot of economic data to digest in the first half of this month – in particular, the August inflation numbers – and that’s just one piece of the larger puzzle.

“The Fed will require more evidence of softening before materially adjusting policy,” said David Page, head of macro research at AXA Investment Managers. “But overall, these numbers are consistent with a 50 basis point Fed hike in September.”

China needs Wall Street

The US and China have finally come to an agreement on one of the biggest problems in global business: how to audit Chinese companies listed on US stock exchanges.

Regulators from both countries announced a deal last week that would allow US officials to scrutinize the audit papers of these companies. The hack means that at the moment, more than 160 Chinese companies may have evaded the immediate threat of being expelled from the world’s largest stock market, according to my colleague Michelle Toh.
The United States is wasting no time in initiating these audits. Reuters reported Wednesday that officials chose Ali Baba (Baba)And the yum china (you can) and others for the first round of inspections, which begins next month.

Some basic information: US regulations state that all companies in American exchanges They must comply with requests to open their books in full by 2024 or they will be banned from trading in the United States. This is a problem for China. The state has been reluctant to allow foreign regulators to inspect accounting firms, citing security concerns. The tension has already led to some Chinese companies pulling back from US markets.

Alibaba, whose shares have been traded on the New York Stock Exchange since 2014, outlined plans this summer to upgrade its Hong Kong listing to basic status, which it expects to be by the end of this year.

why does it matter: The long list of companies at risk goes beyond Alibaba and includes some of China’s big tech giants such as Baidu (beginning)And the (Dinar).

The impending audit deadline has led to a slowdown in stock issuances. Initial public offerings (IPOs) of Chinese companies in the US have fallen significantly, reaching eight so far this year compared to 37 in the same period last year. The value of those deals also shrunk. So far in 2022, companies have raised just $332 million through IPOs in US markets, down from about $13 billion last year.

the odds: This deal is just the first step in formalizing the audit protocol between the United States and China. It remains unclear whether China will actually comply. Last week, the head of the Securities and Exchange Commission, Gary Gensler, warned that companies could still face expulsion if US authorities did not have access to their papers. “The evidence will be in the candy,” he said in a statement.

Analysts at Goldman Sachs said this week that there is still a 50% chance of a delisting of Chinese stocks.

Either way, this is unlikely to have a significant impact on the other contentious issues standing between the United States and China. But this means that China needs Wall Street. Drew Bernstein, co-chair of Marcum Asia CPA, an accounting firm for Asia said companies looking to enter the US market.

Anyone want to buy Zoom?

I don’t need to tell you that the work-from-home boom is falling apart. Dust collects on file peloton (PTON) already done.

Now, the era of back-to-work is trapping its next victim: Zoom.

The weak pandemic earnings outlook and plunging stock prices raise the question of whether the video conferencing company is just one trick that needs to be part of a larger tech company, my colleague Paul R. La Monica reports.

He may have trouble finding a suitor.

Zoom (ZM) You have to deal with several big tech giants who already have similar products. Microsoft (MSFT) She runs Teams and Skype. Cisco (CSCO) He has WebEx. The Google (The Google) The owner of Alphabet runs the Meet and Chat app. apple (AAPL) He has FaceTime.

This leaves four more possibilities.

dead (FB) Zoom can integrate into messaging and social media applications. if sales force (CRM) Combining Slack and Zoom they have created a massive productivity platform. inspiration (ORCL), a business software company, had a reputation as a serial acquirer and was looking for a way to expand into the video space. There is also private equity. Zoom executives may enjoy being released from the whims of Wall Street’s quarterly earnings report.

For now, Zoom remains silent about any acquisition possibilities, or it may just be on mute.

next one

US jobs report for August jobs at 8:30 a.m. ET.

Coming next week: US markets are closed on Monday for Labor Day. We’ll take a break that day and see you here on Tuesday.

#Heres #Fed #reads #todays #jobs #report

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