Five Things You Need to Know to Start Your Day: Americas

Traders start the week cautiously in anticipation of more Middle East tensions, a clear US rate-cut signal supports bonds and Boeing investo [View in browser]( [Bloomberg]( Traders start the week cautiously in anticipation of more Middle East tensions, a clear US rate-cut signal supports bonds and Boeing investors brace for fallout. Here’s what’s moving markets. — [Kristine Aquino]( Middle East caution [Markets traded cautiously on Monday a day after 100 Israeli warplanes swooped]( southern Lebanon, taking out thousands of Hezbollah missile launchers in what was called a preemptive strike. Officials said Israel’s assault on was based on intelligence that Hezbollah was about to fire thousands of missiles at northern Israel. Hezbollah responded by firing more than 200 projectiles, according to Israel, although officials said very limited damage was caused. Oil gains [Oil advanced after the strike, with global benchmark Brent rising toward $80 a barrel]( while West Texas Intermediate climbed past $75. US equity futures edged higher after the S&P 500 capped two-straight weeks of gains on Friday. Treasury yields ticked lower across major tenors, while Bloomberg’s gauge of the US dollar steadied after delivering its biggest weekly decline this year. Rate-cut signal The tensions are further supporting shorter-maturity Treasuries, which got a boost last week after [Federal Reserve Chair Jerome Powell made it crystal clear that interest-rate cuts are coming next month]( Powell, speaking Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, said the “time has come” for the Fed to lower benchmark rates from their two-decade high. Traders are fully pricing a quarter-point reduction at the central bank’s next policy decision in September, and are bracing for some possibility of a half-point cut. US-China dialogue Investors will get more geopolitical catalysts with[China set to bring up issues related to Taiwan and “arbitrary measures” like tariffs]( US National Security Adviser Jake Sullivan visits this week. The official Xinhua News Agency reports, citing a Foreign Ministry official, that Beijing would broach “tariffs, export control, investment review and unilateral sanctions.” Sullivan’s trip will include a meeting with Foreign Minister Wang Yi, and he may also meet with Chinese leader Xi Jinping. Boeing troubles [Boeing shareholders are bracing for potential fallout after NASA announced Saturday that it picked SpaceX]( to use one of its capsules to bring home astronauts stuck at the International Space Station next year. The astronauts arrived at the ISS on Boeing’s CST-100 Starliner test flight on June 6, were originally to remain for roughly a week, but now face an eight-month stay in orbit. The moment comes in an epically bad year for Boeing that’s included a near-catastrophic blowout of an airborne 737 Max jetliner, federal investigations and an executive suite shake-up. What We’ve Been Reading This is what’s caught our eye over the weekend. - [Apple explores a push into robotics]( as it searches for life beyond iPhones - Life as a policymaker in one of the [most famous economic conferences]( - [How Telegram became a magnet]( for extremists and criminals - Qantas accidentally gives customers [an 85% discount on first-class seats]( - [Mpox is a global health emergency]( that could have been avoided - After the yen version collapsed, [the carry trade lives on in the yuan]( - [The death of 1,000 mussels]( sparks backlash against a Finnish company And finally, here's what Joe’s interested in this morning On Friday, Federal Reserve Chairman Jerome Powell [gave his speech at Jackson Hole]( and it was a powerful, unambiguous message that it's time for the Fed to shift its focus. Fighting inflation is yesterday's story. Maintaining a strong labor market is today's. Anyway, I'll get back to the speech in a second. One of the things you hear about all the time in discussions of monetary policy or macro-economics is the importance of expectations, particularly inflation expectations. There's a widespread view that if you want to keep inflation under check then you have to keep inflation expectations in check, or "anchored" as they often say. If inflation expectations become un-anchored (so the story goes), then people will start behaving in a way that manifests in higher actual inflation. People may start consuming more today, on the assumption that prices will be higher tomorrow, and that excess consumption will push demand higher, and that higher demand will cause price increases. Workers will demand higher wages. Companies will raise prices, to cover the cost of their higher labor. And then you get that spiral. You know how it all goes. If inflation expectations remain well anchored (again, so the theory goes), then this behavior can't take root. Maybe inflation will jump higher for a few months, but because the public has been trained to know the Fed will fight that jump, they don't assume that a momentary jump in inflation will lead to something bigger, so that momentary jump doesn't change people's behavior, and then it all fades. Of course, it's hard to measure inflation expectations directly, though we have various surveys and sentiment measures and market based measures that maybe can give us some idea. Standing here in August 2024, with inflation measures having cooled dramatically since the peak in 2022, policymakers will point to their unwavering commitment to get inflation back to 2% as a reason that this dreaded spiral never took hold. We were all trained to know it was temporary, and so it ultimately was temporary, In a new episode of the [Odd Lots podcast out today]( recorded at Jackson Hole, Tracy Alloway and I speak with Richmond Fed President Tom Barkin. We talked about what actually happens at Jackson Hole, and also his assessment of the economy right now. While hiring has definitely cooled down, Barkin still sees some evidence that companies are reluctant to fire workers, due to a fear of being caught short on labor, should the need arise for more workers. Basically, in 2021 and 2022, management suddenly woke up to the fact that labor is not always available when you need it. Memories of this period remain with us still today. Going back to Powell now, I think one way you could characterize his speech is that it was an attempt to keep Employment Expectations well anchored. Yes, we've had this rise in the unemployment rate over the last year, but (per the speech) there is no desire to see any further loosening. U3's rise to 4.3% should not be viewed by the public as a willingness on the part of the Fed to let unemployment get any worse. The same logic we use to place importance on inflation expectations can apply to the employment side as well. Expectations of a strong labor market logically lead to expectations of high consumer demand, which creates yet another reason to keep workers on payroll. From the worker perspective, confidence in a persistently strong labor market means less reason to save money (for a rainy day) and that should keep aggregate demand high and robust, which again should serve to keep the actual labor market tight. When it comes to maintaining full employment, you don't really hear as much about the Employment Expectations channel for keeping the job market robust. But the logic for it is similar to the popular logic about Inflation Expectations. And so the simple view of what Powell set out to accomplish is that by being so direct, is that he's operating through this specific channel. Joe Weisenthal co-hosts Bloomberg’s Odd Lots podcast. 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