Author: Consultant

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report on Thursday showing first-time claims for U.S. unemployment benefits rose by more than expected in the week ended March 4th.

The report said initial jobless claims climbed to 211,000, an increase of 21,000 from the previous week’s unrevised level of 190,000. Economists had expected jobless claims to inch up to 195,000.

With the bigger than expected increase, jobless claims reached their highest level since hitting 223,000 in the week ended December 24th.

Michael Pearce, Lead U.S. Economist at Oxford Economics, said the increase in jobless claims is the “first sign of weakness in the claims data this year but is still well short of the 300k+ level that would be consistent with a recession.”

“As the Fed presses ahead with more rate hikes, we expect layoffs to eventually rise significantly,” he added. “But in contrast to past downturns, the difficulty of finding workers means firms are likely to be reluctant to let go of employees and may respond to weaker demand by first cutting hours or offering smaller wage increases instead.”

The Labor Department also said the less volatile four-week moving average crept up to 197,000, an increase of 4,000 from the previous week’s unrevised average of 193,000.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also advanced by 69,000 to 1.718 million in the week ended February 25th.

The 4-week moving average of continuing claims also rose to 1,679,500, an increase of 9,500 from the previous week’s revised average of 1,670,000.

On Friday, the Labor Department is scheduled to release its more closely watched report on the employment situation in the month of February.

Economists currently expect employment to jump by 203,000 jobs in February after surging by 517,000 jobs in January, while the unemployment rate is expected to hold at 3.4 percent.

LondonCNN — 

After months of soaring stock prices, Europe’s defense companies hardly needed another boost. But a tentative €2 billion ($2.1 billion) European Union plan to procure ammunition for war-torn Ukraine may provide just that.

EU defense ministers wrapped up a two-day summit in Sweden this week. The outcome was a provisional agreement to jointly buy 155-millimeter artillery shells desperately needed by Kyiv, and send more artillery rounds to Ukraine from EU countries’ existing stockpiles.

Speaking in Stockholm Wednesday, Ukraine’s Defense Minister Oleksii Reznikov said his country needed one million rounds of ammunition “as soon as possible” to deter Russian forces.

A final decision is expected on March 20 when EU foreign and defense ministers meet in Brussels.

https://edition.cnn.com/2023/03/09/business/europe-procurement-weapons-ukraine/index.html

Data for week ending Mar. 3, 2023 Release Date: Mar. 8, 2023

Crude Oil Production Re-benchmarking Notice: When we release the Short-Term Energy Outlook (STEO) each month, the weekly estimates of domestic crude oil production are reviewed to identify any differences between recent trends in survey-based domestic production reported in the Petroleum Supply Monthly (PSM) and other current data. If we find a large difference between the two series, we may re-benchmark the weekly production estimate on weeks when we release STEO. This week’s domestic crude oil production estimate incorporates a re-benchmarking that lowered estimated volumes by 51,000 barrels per day, which is about 0.4% of this week’s estimated production total.

https://www.eia.gov/petroleum/supply/weekly/

As news emerged that Iran enriched uranium to 84 percent, Israeli PM Benjamin Netanyahu reportedly held top-level secret meetings on preparations to confront Iran.

Israel’s Channel 12reported on Tuesday that Netanyahu met five times in recent weeks with Defense Minister Yoav Gallant, Chief of Staff Herzi Halevi, Mossad head David Barnea, Military Intelligence chief Aharon Haliva and other military figures to examine Israel’s readiness for a possible attack on Iranian nuclear targets.

Netanyahu also reiterated his previous calls on Tuesday that the international community must act to stop Iran’s escalation.

“The only thing that has ever stopped rogue nations from developing nuclear weapons is a credible military threat or a credible military action,” he told a national security conference. “A necessary condition and often a sufficient condition is credible military action. The longer you wait, the harder that becomes. We’ve waited very long.”

Successive governments have warned that Israel will not tolerate a nuclear armed Iran and in recent weeks closer military cooperation and diplomatic coordination have been noticeable with the United States.

US officials have been increasingly signaling that President Joe Biden will not tolerate a nuclear Iran, after JCPOA talks hit a dead-end in September. “If they start getting too close, too close for comfort, then of course we will not be prepared to sit idly by,” US Special Representative for Iran Robert Malley told National Public Radio in November.

If Tehran has indeed produced a limited quantity of uranium at 84-percent purity, it can signal a possible intentional escalation to put pressure on the West for concessions in nuclear talks. Tehran has been using this tactic since 2019, and specially since 2021 when the Biden administration signaled its readiness to hold talks.

The Times of Israel wrote about Netanyahu’s meetings with military and intelligence officials that “The report, which was not attributed to any source, included few other details about the discussions, and may itself be designed to telegraph the seriousness of Israeli threats to resort to military action in order to shut down Iran’s suspected drive toward a nuclear weapon.”

However, the Channel 12 report said Netanyahu’s meetings resulted in a decision that Israel will act alone if others do not step in. This decision was shared with US Secretary of State Antony Blinken.

If Israel’s intention is to increase pressure on the Islamic Republic, beleaguered by political and economic crisis, the timing might have been right. This week a serious financial chaos has gripped the country as its battered currency is falling to unprecedented levels against major currencies and panic has gripped the markets about uncontrollable inflation in the weeks to come. This in turn can ignite more popular protests and unrest.

Iran, having missed a chance last August to come to an agreement with the Biden administration over reviving the 2015 JCPOA deal, now finds itself under siege and has to decide to escalate its nuclear confrontation further or make the necessary concessions.

But since the breakdown in the nuclear talks, Washington has been playing hard to get, saying that it is not focused on resuming nuclear negotiations and demanding that Iran should stop military cooperation with Russia and repression at home.

To what extent the new demands are serious pre-conditions, or a negotiating tactic, is not clear, but after the Iranian regime killed hundreds during protests and supplies drones to Russia, it would be politically costly for Biden to simply revive the 2015 nuclear deal and lift sanctions.

https://www.iranintl.com/en/202302229941

NEW DELHI, Feb 1 (Reuters) – India proposed on Wednesday 5.94 trillion rupees ($72.6 billion) in defence spending for the 2023-24 financial year, 13% up from the previous period’s initial estimates, aiming to add more fighter jets and roads along its tense border with China.

Finance Minister Nirmala Sitharaman allocated 1.63 trillion rupees for defence capital outlays – an expenditure that would include new weapons, aircraft, warships and other military hardware, as she unveiled nearly $550 billion of total federal spending in the annual budget for 2023-24 starting in April

https://www.reuters.com/world/india/india-raises-defence-budget-726-bln-amid-tensions-with-china-2023-02-01/

Australia is expected to buy up to five US Virginia-class nuclear-powered submarines in the 2030s under the AUKUS defence pact between Washington, Canberra and London.

Earlier reports by US officials, speaking on the condition of anonymity, are expected to be confirmed by Australia tonight.

Prime Minister Anthony Albanese is yet to speak publicly about the supposed $100 billion deal, but will meet with other world leaders next week.

https://www.9news.com.au/world/aukus-update-nuclear-powered-submarines-deal-to-create-ten-thousands-jobs/f2b65469-d7ca-468b-938b-e67c131a3aaa

apan has approved its biggest military buildup since the second world war, warning that China poses the “greatest strategic challenge ever” and outlining plans to develop a counterstrike capability funded by record defence spending.

The plans, announced by the government on Friday, reflect growing alarm over a more assertive Chinese military and a North Korean regime that continues to improve its nuclear and ballistic missile capabilities.

But the changes have also triggered criticism that Japan is abandoning more than seven decades of pacifism under its postwar constitution.

Japan aims to double defence spending to 2% of gross domestic product (GDP) over the next five years, in a departure from its postwar commitment to keep spending at 1% of GDP.

The increase would bring it into line with Nato countries and make it the world’s third-biggest spender on defence after the US and China.

Under the changes, outlined in three documents, Japan will also acquire new weapons that can strike enemy targets 1,000km away with land or sea-launched missiles, a move some believe violates its war-renouncing constitution.

Article 9 of the constitution, drawn up by US occupation forces after the second world war, renounces war and forbids Japan from using force to settle international disputes. Its military, known as the self-defence forces, is limited to a strictly defensive role. But critics say that has left Japan ill-equipped to respond to present-day security threats posed by China and North Korea.

While Japanese voters have traditionally been skeptical about direct revision of the constitution, public support for a more robust military has grown in since the Ukraine war and amid fears that a Chinese invasion of Taiwan could pose a threat to Japan’s security.

One of the documents, the national security strategy, said Japan faced “the severest and most complicated national security environment since the end of the war” and singled out China as “the greatest strategic challenge ever to securing the peace and stability of Japan”, as well as a “serious concern” for Japan and the international community.

The US ambassador in Tokyo, Rahm Emanuel, welcomed the strategies as “a momentous milestone” for US-Japan relations and for making a “free and open Indo-Pacific” an achievable reality.

Debate has also swirled around plans to allow Japan’s self-defence forces to carry out counterstrikes against enemy bases overseas, a capability some have said is essential to counter the potential threat posed by North Korean missiles.

Japan’s government has renamed what is known as a preemptive strike to “counterstrike capability,” apparently to emphasise that it would be used strictly in self-defence when the country is confronted with signs of an imminent attack.

Despite a nuanced wording of the strategy, the main threat is China, for which Japan has had to prepare “by using North Korea’s threat as a cover”, said Tomohisa Takei, a retired maritime self-defence force officer.

Despite the government consensus on the nature and severity of threats to Japan’s security, the ruling Liberal Democratic party is divided on how the increase in defence spending should be financed.

The prime minister, Fumio Kishida, has opposed calls to use government bonds to help pay for the defence outlay, estimated at ¥43tn ($320bn) over the next five years, opting instead to gamble on tax rises that his party and its junior coalition partner, Komeito, endorsed on Friday.

But the tax increases could prove unpopular. In a poll conducted last month by Fuji TV, 66% of respondents opposed higher taxes to pay for a bigger military.

Money will be spent on upgrading Japan’s missile defence and buying up to 500 US-made Tomahawk missiles, media reports said. It would eventually deploy more than 1,000 long-range cruise missiles able to reach North Korea or coastal areas of China, according to the Yomiuri Shimbun newspaper.

Japan is also expected to strengthen its military presence in its southernmost islands, tripling the number of military units and equipping them with the ability to intercept ballistic missiles, according to media reports.

The more forceful tone in the national security strategy is expected to anger China. The document, revised for the first time in almost a decade, identifies Beijing as a regional security threat and no longer states that Japan is seeking a “mutually beneficial strategic partnership” with China.

This week, the Chinese foreign ministry spokesperson Wang Wenbin urged Japan to “act upon the political consensus that the two countries are cooperative partners and do not pose a threat to each other”.

“Hyping up the ‘China threat’ to find an excuse for its military buildup is doomed to fail,” Wang said.

The new strategy represents a pronounced shift in Japan’s military posture, said Chris Hughes, professor of international politics and Japanese studies at Warwick University.

“The Japanese government will depict these changes as necessary, moderate and wholly in line with previous defence posture,” said Hughes, author of Japan as a Global Military Power. But, he added, “they are going to, in the words often used by the Liberal Democratic party itself in policy documents, ‘radically strengthen’ Japan’s military power.”

The self-defence forces will be reorganised, with the army, navy and air force placed under a joint command to respond more quickly to emergencies.

Agencies contributed to this report.

• Russia launched one of its biggest aerial assaults Thursday with 81 missiles targeted at Ukrainian infrastructure across the country. This included six Kinzhal ballistic missiles that eluded Kyiv’s air defenses, the Ukrainian military said. At least 11 people were killed.
• President Volodymyr Zelensky, in an exclusive interview with CNN, said he could not envisage meeting President Vladimir Putin as the Russian leader can’t be trusted.

https://edition.cnn.com/europe/live-news/russia-ukraine-war-news-03-09-23/index.html

The Bank of Canada held its benchmark interest rate steady at 4.5 per cent Wednesday, pausing its year-long campaign to increase borrowing costs while leaving the door open to further rate hikes if inflation doesn’t slow as quickly as expected.

The widely anticipated decision makes the Bank of Canada the first major central bank to halt monetary policy tightening and puts it on a different trajectory than the U.S. Federal Reserve, whose officials have said they expect to increase interest rates several more times.

Bank of Canada holds key interest rate steady for first time in a year. Here’s what’s next

The Bank of Canada has raised its overnight rate eight consecutive times since March, 2022, hammering the housing market and squeezing Canadians’ finances in an effort to cool demand in the economy and slow the pace of price growth. While inflation remains high, bank officials believe they have done enough to guide it back down to the bank’s 2-per-cent target over time.

“Restrictive monetary policy continues to weigh on household spending, and business investment has weakened alongside slowing domestic and foreign demand,” the bank said in its one-page rate announcement.

“With weak economic growth for the next couple of quarters, pressures in product and labour markets are expected to ease. This should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers.”

Wednesday’s decision puts the central bank in a holding pattern. However, the bank emphasized that this is a “conditional” pause, and that it is prepared to raise rates again if inflation proves stickier, or the economy proves more resilient

“The Bank of Canada needs a clearer picture on growth and inflation prospects to decide if it needs to hike again or more definitively set aside that prospect,” Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a note to clients. “And with so little time since its last decision, it simply doesn’t have enough data to make that call.”

Interest rate swaps, which capture market expectations about future rate hikes, are pricing in another quarter-point rate increase this summer, and no rate cuts before the end of the year.

Consumer price inflation has dropped steadily since hitting a four-decade high of 8.1 per cent last June. The Consumer Price Index grew 5.9 per cent year-over-year in January, while shorter-term measures suggest core inflation is running at about 3.5 per cent.

The bank expects CPI inflation to fall to about 3 per cent by the middle of the year.

Much of the decline in inflation has come from falling oil prices, as well as a drop in durable goods inflation, thanks to lower shipping costs and less consumer demand. For inflation to keep falling, there will also need to be a slowdown in service price inflation, which is driven to a large extent by wages.

Interest rate changes work with a lag, meaning that much of the impact of last year’s rate hikes has yet to be felt. This is expected to change in the coming months, as more homeowners renew their mortgages at higher rates and consumers cut back on nondiscretionary spending.

The bank is projecting near-zero economic growth through the first half of 2023. Governor Tiff Macklem has said that Canada could experience a “mild recession” in the coming quarters – a view shared by many Bay Street analysts. Market-based signals are flashing warning signs about an impending slowdown, with the yield curve for Government of Canada bonds deeply inverted.

So far, the economic data is mixed. GDP growth stalled in the fourth quarter of 2022, coming in well below the central bank’s forecast. Much of this weakness came from slower business investment in inventories, rather than a drop in consumer spending. However, the bank notably dropped its reference to the Canadian economy being in “excess demand” from the Wednesday rate announcement.

Meanwhile, the labour market continues to defy expectations. Canadian employers added 150,000 positions in January, 10 times what Bay Street analysts had expected. The unemployment rate remained at 5 per cent, near a record low, while wages continue to grow by 4 per cent to 5 per cent on a year-over-year basis. February labour force survey data will be published on Friday.

“While it’s great news for the more than 220K Canadians who have found jobs in the past couple months, central bankers think it’s become too much of a good thing,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote in a note to clients.

Mr. Macklem has argued that the current pace of wage growth is not consistent with the bank’s 2-per-cent inflation target, and has said that unemployment needs to rise to get price growth back under control.

The bank’s decision to hit pause puts it at odds with the U.S. Federal Reserve, which appears to be gearing up for several more interest rate hikes. That divergence could put downward pressure on the Canadian dollar in foreign exchange markets.

On Tuesday, Fed Chair Jerome Powell told a Senate committee that U.S. interest rates would likely need to move higher than previously anticipated in the face of persistent inflation and surprisingly strong economic data. He also said the pace of rate hikes may need to increase, opening the door to another half-point increase at the Fed’s next rate decision on March 22.

Some economists argue that the Bank of Canada is justified in halting rate increases before the Fed. Inflation is lower in Canada, and the combination of higher household debt levels and shorter mortgage terms means the Canadian economy is more sensitive to rising borrowing costs.

Still, further weakness of the Canadian dollar – which has already fallen considerably against the U.S. dollar since last summer – would increase the cost of imports, adding to inflation.

“The ability to chart a different course than the Fed comes down to the exchange rate,” Mr. Mendes wrote. “The Canadian dollar has depreciated 3 per cent since the beginning of February. That could eventually push inflation higher, but apparently not enough in the view of central bankers to offset the risks of raising rates higher in [a] country where households are so heavily indebted.”

Wednesday’s decision is good news for the housing market, said Karen Yolevski, chief operating officer at Royal LePage, a real estate company. She said increased certainty around mortgage rates may bring would-be buyers back into the market, potentially supporting home sales volumes and prices this spring.

“People want some certainty around what they’re going to pay, and they are looking to see where those rates settle down,” Ms. Yolevski said in an interview.

“And in terms of mortgage holders, certainly for those who have variable rate products there’s a sigh of relief that the interest rate has remained steady this time around,” she said.