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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Good Morning. Boeing’s Starliner spacecraft successfully touched down in New Mexico this weekend (though without its passengers, who still need a ride home from the International Space Station). Boeing also signed a deal with the union representing its production workers. An inflection point for the troubled company? Email us: [email protected] and [email protected].

Markets and the employment report

After July’s disappointing US employment report, and the brief but violent market freakout that followed, our message was “everyone calm down”. After an August report that was only marginally better, that’s still the right message. Whisper it, chant it, get a tattoo: there is still no recession on the horizon.

But hopes that the weak July jobs numbers were anomalous — a statistical blip, an artefact of bad weather — seem to have been unfounded. While the number of people on temporary lay-off did fall, that was not enough to shrink the ranks of the unemployed by much. The unemployment rate, at 4.2 per cent, barely improved, and the number of people who, for economic reasons, are working part rather than full time rose by 6 per cent from July, to 4.8m.  

Not only was a modest number of new jobs created in August, but the number of jobs added in June and July were revised down. After the revisions, the average gain over the past three months is 116,000 jobs a month. As Omair Sharif of Inflation Insights points out, the level of statistical significance of the survey is 130,000. That is, we can’t be sure that the number of jobs added this summer wasn’t zero. 

In sum, the jobs market is weakening fast enough that it can only fall on the “con” side of the economic ledger. It is something to watch closely. But while the direction of change is concerning, the level isn’t. An unemployment rate of 4.2 per cent is fine. Wage growth, hours worked and the participation rate are all stable. Initial jobless claims have been falling.

And looking beyond the labour market, all the good things we have been banging on about in this space remain good (GDP growth, corporate earnings, consumer spending, et al).

The market is not amused, though. The S&P 500 fell 1.7 per cent after the report landed Friday morning, and the two year yield fell about 10 basis points as markets priced in a bigger change of a 50 basis point Fed rate cut in September, rather than 25. 

There is some slightly oblique good news in the stock market’s sell-off. That bad economic news is bad news for stocks suggests that, in the eyes of the market, inflation is dead and gone. All we are worried about now is earnings growth. And even that worry might not be quite as strong as Friday’s headlines suggest. The stocks that did worst were not in economically sensitive sectors, but rather big tech: Tesla, Nvidia, AMD, Amazon, and so on. The adjustment to slower growth is taking the form of a correction in the biggest winners from the last regime, rather than an outright run for cover.

Demand versus supply in the commodities down cycle

Last week we wrote about the commodities down cycle. Oil continued going down throughout the rest of the week, finishing on Friday at $71 for Brent, the global indicator, and $67 for the US standard WTI — the lowest point for either index since June 2023.

As we wrote, a key cause is flagging demand in the US and China. But geopolitics are a factor too. Last week, Libya released some of the output that had been blocked by internal conflict, and put in place plans that would bring back the rest. That helped depress prices.

Another development pushed the other direction — or should have. The Opec-plus group, hoping to support prices, has had deep production cuts in place since late 2022 (5.9mn barrels a day, or around 5 per cent of average daily demand). The cuts were set to start being phased out in October. On Thursday, Opec-plus announced that they would delay the phase out for another two months. 

The news slowed the price declines for all of one day:

This tells us two things. First, Opec-plus continues to lose its hold on the oil market. Non-Opec producers like the US and Guyana are generating more oil, and there are compliance issues within Opec. Kazakhstan, Iraq and Russia have continuously exceeded the production targets.

Second, it shows that demand rather than supply is leading this down cycle. Oil and other commodities are likely to keep sliding until the US economy gains momentum or Chinese demand picks up.

In general, if the world wants less oil, that is not a good indicator for global growth. But for big oil importers, like Japan and Turkey and many other emerging markets, cheaper oil will be a boon. 

(Reiter)

Correction: Kroger-Albertsons

Turns out we were missing something. Albertsons issued a special cash dividend of approximately $6.85 per share to its shareholders after the merger was initially announced. That means that, if the merger goes through, the remaining available payout is around $27 per share, not $34. We regret the error. 

The point we made stands, though. It’s a long way from $19 to $27, and this is not an open and shut antitrust case.

(Reiter and Armstrong)

One Good Read

Me talk Latin one day.

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