by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is eagerly awaiting the latest University of Michigan survey data to assess consumer sentiment ahead of the election. In sports news, the New York Yankees are set to take on the Los Angeles Dodgers in the first game of the World Series. Today’s Comment will explore what the strong October Purchasing Managers’ Index (PMI) indicates about corporate earnings. Next, we will provide an update on US chip production, followed by a discussion of Canada’s new immigration policy. As usual, our report will conclude with a roundup of international and domestic data releases.

US Shows Resilience: The latest S&P Global survey suggests that the economy is off to a robust start this quarter, indicating the potential for stable earnings growth.

• The October flash index showed an increase in business activity, with the composite PMI rising from 54.0 to 54.3. The services sector remained a key driver of the economy, while manufacturing continued to lag. Notably, firms raised prices for goods and services at the slowest pace in nearly 4.5 years. However, the employment component pointed to a slowdown in hiring for the third consecutive month. Despite weakness in exports, firms saw a sharp increase in new business, driven largely by strong domestic demand.
• The strong PMI data is a positive indicator for S&P earnings. As the accompanying chart demonstrates, a correlation exists between rising PMI values and improving corporate profitability. This relationship is likely due to the survey’s comprehensive tracking of key business metrics, including new orders, input and output prices, inventory levels, and overall business activity, which provides a valuable snapshot of the operational health of firms. As a result, the PMI has often been a good indicator when tracking the momentum of future corporate earnings.

• While the sideways movement in the index suggests that the economy is solidly in expansion, it also signals that significant earnings growth is unlikely in the near term. Nonetheless, this environment favors high-quality stocks with strong profitability and low debt levels, as they are better positioned to deliver sustainable dividends to investors. However, as confidence in a soft landing strengthens and the Fed begins to lower interest rates, we anticipate investors becoming more willing to take on risk.

US Chip Power: Taiwan Semiconductor Manufacturing Co (TSMC) has achieved a significant milestone at its US-based facility, bringing the United States one step closer to domestic chip manufacturing capabilities.

• TSMC’s Arizona plant has surpassed expectations, achieving production yields 4% higher than comparable facilities in Taiwan. This achievement, accomplished despite overcoming challenges such as labor disputes and construction delays, is a promising sign for US semiconductor independence. As the primary chip provider for Nvidia and Apple, TSMC’s increased domestic production capacity strengthens the company’s case for further government support under the CHIPS and Science Act. The company is expected to receive $6.6 billion in grants under this legislation.
• The expansion of semiconductor manufacturing hubs is at its most robust level in nearly half a century. Investments in facilities dedicated to computer, electronics, and electrical manufacturing now account for nearly 60% of total US construction spending, a significant increase from the approximately 8% share observed a decade ago. The new facilities are expected to triple the US’s chipmaking capacity by 2032, elevating its market share from 10% to 14% of global chip production. As a result, the US is better suited to be able to meet its growing demand for chips as it looks to dominate the AI space.

• The development of domestic semiconductor fabrication plants is likely to continue for national security reasons, but their long-term viability may be a concern if firms cannot significantly reduce costs. It has been widely speculated that firms may rely heavily on automation in these new facilities to maintain profitability. However, this could lead to pushback from lawmakers who want firms receiving funding to increase hiring for manufacturing workers. While we do not currently see this as a significant issue, it could become a potential problem in the future.

Canada Immigration Crackdown: Although the increase in foreign workers has bolstered the country’s economy, concerns over the rising costs of living have prompted a reassessment of immigration policy.

• On Thursday, the country released its Immigration Levels Plan, which aims to reduce the number of permanent residents by 20% by 2025. The new restrictions will cap the number of immigrants, leading to a contraction in the overall population over the next two years. Moderate growth is expected to resume in the third year. This policy change comes amid a growing backlash against the country’s immigration policies, which have allowed over 2.35 million people to immigrate since mid-2022, roughly the population of Houston.
• The surge in immigration has contributed to economic overheating, with rental inflation being a particular concern. Despite moderation in other areas and a decline in overall inflation, rental inflation has continued to accelerate, rising over 8% in Q3 2024 from the previous year. However, immigration has also helped boost Canada’s economic growth to match that of the US, at just over 2% per year over the past decade. As a result, there is an expectation that the restrictions could also slow the overall economy.

• The economic impact of immigration restrictions will depend largely on their effect on labor productivity. A significant increase in the labor supply can sometimes lead firms to become less inclined to adopt new technologies and improve their processes, which could potentially offset some of the production gaps caused by labor shortages. However, we believe that Canadian financial assets may benefit from the potential boost to consumer sentiment and spending resulting from these restrictions. Therefore, we maintain a cautiously optimistic outlook for the country.

In Other News: Cleveland Fed President Beth Hammack has reiterated that the central bank has more work to do before declaring victory over inflation, further indicating that many Fed officials favor a gradual approach to interest rate cuts. Meanwhile, new home sales increased in September as prospective buyers took advantage of the drop in mortgage rates. Russian President Vladimir Putin’s ambiguous explanation for the presence of North Korean troops in Russia suggests that he may be using the additional manpower to demonstrate his willingness to escalate the conflict in Ukraine.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently processing new earnings data. In sports news, Barcelona convincingly defeated Bayern Munich in the Champions League this week. Today’s Comment will begin with our analysis of the latest Federal Reserve Beige Book. We will then share our thoughts on the housing market and provide an overview of why Brazil finds itself caught in the middle of the conflict between the US and China. As always, the report will conclude with a roundup of economic and domestic data releases.

Fed’s Beige Book: The latest survey of business contacts in the Fed’s twelve districts indicates that economic growth has begun to slow.

• The latest Fed Beige Book supports the central bank’s recent decision to pivot, as contacts indicate a slowing economy. Nearly all Fed districts reported no change in economic activity since the previous September survey. Weakness was most evident in the manufacturing sector, with agriculture also showing signs of decline. In relation to the Fed’s dual mandate, over half of the firms reported slight to moderate hiring growth, while most noted a moderation in selling prices. That said, despite the dim outlook from business contacts, Fed officials remain positive.
• On Monday, Federal Reserve officials expressed optimism about the economy’s resilience, suggesting a cautious approach to interest rate cuts. While some favored a gradual reduction, others indicated that rate cuts could continue even in a strong economy. The latest dot plot reflects this divergence, showing a median expectation of 50 basis points in cuts for the rest of the year, but with nearly half of the committee favoring a more modest 25 basis point reduction. This varying degree of policy accommodation is likely to complicate the Fed’s efforts to coordinate monetary policy.

• While the Fed Beige Book may have emboldened dovish committee members, we believe the timing of the next rate cut hinges on the labor market’s strength and the level of inflation. The upcoming jobs report is projected to show 135,000 jobs added in October, with the unemployment rate remaining at 4.1%. Stronger-than-expected job growth or a falling unemployment rate could lead officials to skip a rate cut at their November meeting. Moreover, a 0.4% month-over-month increase in the core PCE price index, may necessitate a reassessment of the easing cycle altogether.

Residential Market: It has been over a month since the Fed cut rates, and the housing market has not rebounded.

• US sales of existing homes dropped to a 14-year low in September, with a 1.0% decline bringing sales to a seasonally adjusted annual rate of 3.84 million units. The subdued demand is likely tied to elevated home prices, despite borrowing costs reaching their lowest level in two years. The average home price is now roughly 6.3 times the average income, up from five times a decade ago. While lower borrowing costs have made homes more attractive, the main beneficiaries have been existing homeowners refinancing their mortgages to lower rates.
• Many potential homebuyers remain on the sidelines, waiting for mortgage rates to drop further and offset high home prices. This stems from the belief that rates will decline, mirroring their sharp rise during the Federal Reserve’s tightening cycle. In the first year of rate hikes, mortgage rates jumped from 3.5% to a peak of 7.2%, driven largely by uncertainty over how aggressively the Fed would raise rates. For rates to fall significantly, the Fed must clearly indicate how far it plans to cut interest rates. This is why rates have stopped their descent following the Fed’s first rate cut.

• The uncertainty surrounding the neutral interest rate (estimated to be between 2.25% and 4.00% according to the latest economic projections), complicates the outlook for mortgage rates. Inflation expectations, particularly the concerns about whether inflation will sustainably fall below 2%, play a significant role in determining the long-run path of Fed policy. As a result, mortgage rates are unlikely to decline significantly in the coming months, even if the central bank begins to cut rates. This could weigh on consumer sentiment and residential investment, hindering economic growth.

Brazil-China: Latin America’s largest economy appears to be under pressure to take sides in the US-China rift.

• On Wednesday, a US official urged Brazil to reconsider its plans to join China’s Belt and Road Initiative (BRI), cautioning that the agreement might not serve Brazil’s best interests as it could lead to a loss of sovereignty. This warning came in response to Brazil’s statements about potentially joining the initiative to counter protectionist measures from the US and the European Union. China remains one of Brazil’s top trading partners, while the US is one of the biggest contributors of foreign direct investment.
• The escalating dispute underscores growing concerns about the diminishing interconnectedness of the global economy. The West’s deliberate effort to reduce its role as the importer of last resort has prompted countries in the Global South to seek alternatives. Many are diversifying their currency reserves, including gold, and some are exploring regional currencies tied to their key commodities. This trend suggests that these countries are increasingly looking to offset the loss of trade with the West by trading with one another.

• As countries like Brazil navigate a less globalized world, we believe they will increasingly move away from using the US dollar. This shift is driven not only by the recent weaponization of the dollar but also by the desire to strengthen ties with other nations. In particular, countries aligned with China are likely to explore alternative currencies for trade as they reduce their reliance on the US. Although we don’t expect the dollar to lose its dominance, its influence may diminish over the next decade.

In Other News: The Bank of Canada cut its benchmark rate by 50 basis points, reflecting the global shift towards disinflation as it aims to normalize policy and shield Canada’s economy from further decline. Boeing workers voted against the latest wage agreement, likely setting the stage for an extended strike. Additionally, Tesla’s earnings report exceeded expectations, indicating that the worst may be over for the company.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is eagerly awaiting the latest wave of earnings reports. In sports news, Real Madrid staged a remarkable comeback and defeated Borussia Dortmund 5-2 with five unanswered second-half goals. Today’s Comment will explore the market’s anticipation of a Republican sweep in the upcoming election, analyze the economic indicators suggesting a more dovish ECB compared to the Federal Reserve, and delve into the ongoing reluctance of Western companies to sever ties with China despite escalating tensions. As always, the report will include a summary of key domestic and international economic data releases.

Red Wave is Coming? Election jitters are starting to make their way into the market as investors grow bullish about a potential Republican sweep in November.

• Though the election remains a toss-up, markets seem to be preparing for a potential Republican victory. The 10-year Treasury yield has been the most noticeably hit by concerns over higher inflation expectations driven by tariffs and rising deficits, triggering some selloffs. Meanwhile, the Mexican peso (MXN) has plunged amid fears that a new government could strain relations over trade, border security, and recent judicial reforms. The movement is likely a reflection of investors not wanting to hold on to certain assets until there is certainty regarding the outcome.
• The greatest uncertainty stems from how a Republican-controlled government will act on campaign promises. President Trump’s tax proposals, including eliminating taxes on tips, lowering corporate taxes, and offering exemptions for military personnel, police, and firefighters, are expected to significantly increase the national deficit. There is also uncertainty surrounding tariffs, which have ranged from 10% on all imports to as high as 2000% on specific Chinese goods. Moreover, doubts persist about the seriousness of some of these proposals as there are concerns about their feasibility.

• The outcome of the congressional and presidential elections will likely depend on a few key votes, so investors should be cautious about assuming a clear winner and avoid being surprised by an unexpected result. The red wave optimism of 2022 serves as a reminder that polls can be unreliable. While we can anticipate some market volatility around election day, it is unlikely to significantly impact the long-term trends of Treasury yields or equity performance. Regardless of the outcome in November, the winning party is likely to scale back on campaign promises quickly.

Leading the Pack: While the eurozone’s growth remains uncertain, the US economy is beginning to gain traction.

• The United States was the only developed country to have its economic growth outlook upgraded by the International Monetary Fund for the next two years. According to the supranational agency, the US is expected to maintain its position as the driving force of global growth, fueled by consumer spending this year and next. In contrast, the eurozone’s growth outlook has been downgraded for the coming two years, weighed down primarily by a slowing in manufacturing, tightening of fiscal policy, and cooling of the labor market.
• Recent data suggests the ECB and Fed will ease at different rates. The US Citigroup Economic Surprise Index entered positive territory earlier this month, as economic data has consistently exceeded expectations. In contrast, the eurozone’s economic surprise data, while improving, remains negative. The more robust US performance has led Fed officials to advocate for a more gradual approach to rate cuts. Meanwhile, the continued weakness in the eurozone has prompted ECB officials to push for aggressive easing to prevent the region from slipping into recession.

• Despite differing outlooks, the IMF maintains that global inflation has largely been defeated. This suggests that central banks should continue their easing cycles in the coming months. We anticipate that the Fed will likely cut rates by at least 25 basis points before the year’s end, assuming there are no inflationary setbacks. Meanwhile, the European Central Bank could reduce rates by 50 basis points at its next meeting. The ECB’s relatively dovish stance and economic weakness should lead the euro (EUR) to depreciate against the dollar.

Middle Ground on China: Firms appear to be unwilling to readily give up ties with China even as the West continues to reduce ties with the second largest economy.

• Apple CEO Tim Cook has reaffirmed the company’s commitment to investing in China, highlighting the country’s crucial role in its supply chain. This statement follows a recent meeting with a top Chinese technology official to discuss strengthening bilateral ties as the Chinese economy has struggled to regain its footing following the pandemic. In the meeting, the Chinese officials pushed Cook to agree to invest in some of its key industries, such as cloud services and the secure management of data.
• Despite Beijing’s reassurances of its commitment to prevent a prolonged economic slowdown, foreign direct investment in China has declined. Investors remain concerned about the potential for deflation and increased Western scrutiny of Chinese exports. In recent years, China’s trade relationship with the United States has faced challenges as officials have raised import tariffs and tightened export restrictions on companies. As a result, trade activity between the US and China remains well below its long-term trend.

• Economic decoupling between the United States and China is likely to occur, despite potential resistance from some companies. While the transition may be slower than anticipated, the overall trend remains clear as both sides don’t trust one another. US companies with significant revenue or supply chain exposure to China are particularly vulnerable to the disruptions associated with this shift. Investors should consider adjusting their portfolios accordingly to mitigate these risks.

In Other News: The latest AI processors for Huawei Technologies were developed by TSMC, indicating that the company is circumventing some of the export restrictions imposed by the US. Additionally, US officials have confirmed that they believe Russia has used North Korean troops in its conflict with Ukraine. This decision exemplifies the growing threat posed by this new axis of evil. Lastly, Israel has confirmed the killing of a potential successor to Hezbollah, signaling that it is closer to achieving its objectives in Lebanon.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a preview of the big BRICS summit of emerging-market nations such as China, Russia, and Iran. Since the group includes key countries in China’s geopolitical bloc, we’ll be looking to see how much General Secretary Xi dominates the meeting, despite it being hosted by Russian President Putin. We next review several other international and US developments that could affect the financial markets today, including an important new IPO on the Indian stock market and a court ruling that favors the US oil and gas industry.

BRICS Summit: A summit of the BRICS emerging-market countries kicks off today in Russia. While the group is led by Brazil, Russia, India, China, and South Africa (accounting for its acronym), this will be the first summit since the group was expanded to include Saudi Arabia, Iran, the United Arab Emirates, Egypt, and Ethiopia. Importantly, leading countries in the group say the summit will discuss further steps to reduce use of the US dollar in international trade and develop a BRICS currency and non-dollar international payments system.

• The discussions on moving further away from the dollar and Western systems will likely play into investor concerns about the greenback’s value going forward. That could weigh on the dollar and boost gold prices in the coming days.
• Nevertheless, as we noted in our Comment yesterday, the effort by some countries to cut their use of the dollar hasn’t stopped it from appreciating against most other major currencies for the last decade and a half. The chart below shows how the greenback’s value has changed against each currency in the Federal Reserve’s broad dollar index since roughly the beginning of its long bull market.

China: According to market data provider Wind, share buybacks by companies listed on China’s domestic stock exchanges have reached the equivalent of $33 billion for the year to date, almost double the record amount in all of 2022. The buybacks have been driven by a special lending facility that was part of last month’s economic stimulus program. If the strong buybacks continue, they could help buoy the market even as investors begin to question the efficacy of the overall stimulus program.

India: South Korean auto maker Hyundai Motors today raised the equivalent of $3.3 billion by listing 18% of its local unit on India’s main stock exchanges. Even though the share price fell modestly by day’s end, the rich IPO valuation for the unit is expected to entice other global companies to consider listing their Indian units as well. That prospect underscores India’s attractiveness as one of the world’s few large, fast-growing economies.

European Union: For the first time since Russia invaded Ukraine in 2022, leading to shortages of natural gas in the EU, we’ve noticed that media concerns about gas storage have fallen off sharply. Nevertheless, we think it’s important to note that EU gas storage is now more than 95% full, above the five-year average of around 92% for this time of year. That has kept a lid on EU gas prices and should help limit the damage if geopolitical events disrupt international supplies this winter.

United Kingdom: Bank of England Chief Economist Huw Pill has reportedly sent a private letter to the Office of National Statistics complaining that the agency still hasn’t fixed its problem with unreliable estimates regarding employment and other aspects of the labor market. The episode shows how statistics agencies, including in the US, have struggled with falling survey response rates, which have led to big data revisions and called into question the accuracy of economic data. (Of course, the same dynamic has rendered political polls less reliable.)

US Economic Policy: With exactly two weeks to go before the presidential election, we still consider the contest too close to call. Nevertheless, we’re intrigued by an article in today’s Financial Times that looks at the possible economic policies of Vice President Harris if she were to win. The article is useful because, as we noted in our recent Bi-Weekly Geopolitical Report comparing US foreign policy under Trump versus Harris, the vice president’s policy views are hard to read, based on her relatively low profile in the Biden administration and her own campaign strategy.

• The article claims Harris’s most likely picks for Treasury Secretary would be current Deputy Treasury Secretary Wally Adeyemo, current Commerce Secretary Gina Raimondo, or current White House Chief of Staff Jeff Zients.
• The article says Harris might also consider Federal Reserve board member Lael Brainard as Treasury secretary, but she may prefer to have her replace Jerome Powell as Fed chair when his term expires in 2026.
• The article also notes that Harris has much closer ties to top business leaders than President Biden does. The article therefore suggests Harris would listen more closely to business concerns about the economy and move away from some of Biden’s more progressive policies.

US Oil Industry: A federal judge yesterday ruled that a regulation friendly to the offshore oil industry should remain in place until next May, rather than expiring as scheduled in December. The regulation exempts the industry from a rule protecting a nearly extinct whale species, and industry lobbyists had argued that if the exemption expires, all US oil rigs in the Gulf of Mexico would have to shut down. Environmentalists have argued that the industry position amounts to fear mongering.

US Spirits Industry: According to industry data provider IWSR, the volume of alcoholic spirits sold in the US from January through July was down 3.0% from the same period one year earlier, accelerating from a 2.9% decline in full-year 2023 and a flat performance in 2022. For comparison, US spirits consumption had increased at an average annual rate of 2.6% per year in the two decades to 2019, and the growth rate nearly doubled in the pandemic years of 2020 and 2021. What’s unclear is whether the recent declines are structural or merely cyclical.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a statement from a European monetary policymaker that suggests the European Central Bank could cut its benchmark short-term interest rates more slowly than investors expect, just as we think the Federal Reserve could cut US rates more slowly than anticipated. We next review several other international and US developments with the potential to affect the financial markets today, including a new competitive threat from Chinese electric vehicle makers and a tentative deal to end the Boeing strike in the US.

Eurozone: Slovenian central bank governor Boštjan Vasle, who is also on the European Central Bank’s policy committee, has warned that the ECB’s back-to-back interest rate cuts in September and October do not necessarily portend further cuts at each upcoming policy meeting. European swap markets suggest investors expect an aggressive pace of cuts, but Vasle said the policymakers will need to be convinced by the economic data. The statement suggests that the ECB will cut rates only slowly from here, just as the Fed might do with US rates.

France: Economy Minister Armond yesterday said state-investment bank Bpifrance will take a stake of about 1% in Sanofi’s consumer health business as part of its sale to a US private-equity firm. That will give the French government a seat on the health company’s board and ensure it has influence over the unit’s production, investment strategy, and employment policies. The move shows how the French government continues to prioritize maintaining control over what it considers strategic industries.

Moldova: In presidential elections yesterday, incumbent Maia Sandu came in first but failed to win an outright majority. She will therefore compete in a run-off on November 3, facing main rival Alexandr Stoianoglo, whose candidacy was backed by the pro-Russia Socialist party. Also in the elections, voters only barely approved a referendum supporting future accession to the European Union. The disappointing results for Sandu followed weeks of reports that Russian operatives were working to throw the elections into the Kremlin’s favor.

China: In a sign that China has expanded its lead in electric-vehicle technology, almost all major Chinese EV makers have now developed or are starting to develop extended-range EVs. The new Chinese EREVs can go more than 600 miles on a single charge and cost about 10% less than regular EVs. They not only accommodate a power cable to recharge the battery, but they also have a small internal-combustion engine to generate electricity for the battery when needed.

• The new Chinese EREVs may be an additional competitive threat to traditional and electric vehicle manufacturers around the world.
• Therefore, they are likely to further spur protectionist measures against Chinese EVs in the US and the rest of its geopolitical and economic bloc.

China-India: Ahead of the big BRICS summit opening tomorrow, China and India have reportedly reached a deal on military patrols along their disputed border in the Himalayan mountains. After deadly clashes along the “actual line of control” in 2020, tensions have been high in the area, raising the risk of a broader, more dangerous conflict between the countries. Although we haven’t yet seen any details on the deal, a solid agreement that cools tensions over the long term would therefore be a positive for global stability.

• We suspect the new deal was at least partly aimed at getting the BRICS summit off on the right foot. We also suspect Beijing might have made concessions to New Delhi to slow its growing ties to Washington, Tokyo, and Canberra.
• Separately, we note that the BRICS summit is due to discuss further de-dollarization efforts. So far today, the risk that the BRICS countries will further reduce their use of the greenback is giving a boost to gold prices. Near gold futures today have reached a new record high and are currently trading at about $2,752.40 per ounce.
• As a reminder, our Bi-Weekly Geopolitical Report from September 9 discussed prospects for the dollar as the world fractures into relatively separate geopolitical and economic blocs. The report shows how the dollar has kept appreciating against most other fiat currencies even as some countries have tried to reduce their use of it, in large part because of continued strong capital flows into the US.

United States-Russia: More than 50 members of the US Congress from both parties have written a letter to the Biden administration to protest SLB’s continued work in support of Russia’s oil industry. The letter to Secretary of State Blinken and Treasury Secretary Yellen demands the administration tighten its sanction rules so that US firms aren’t helping Russia earn oil revenues, which in turn can be used to finance its war against Ukraine.

• The move suggests SLB and other Western firms still operating in Russia could soon be forced to retreat from the market.
• Exemptions for oil service firms like SLB were initially put in place to avoid a collapse in Russian oil output. If Western oil service firms are forced to pull out of the country, there is some risk that Russian oil output could fall, pushing up global energy prices.

United States-Israel-Iran: Two classified US intelligence reports on Israeli preparations for a military strike against Iran have reportedly been leaked and posted on pro-Iranian internet platforms. Based on press reports, the two reports appear to be relatively raw, first-cut analyses of spy-satellite imagery collected by the National Geospatial-Intelligence Agency last week.

• The intelligence summaries do not appear to be comprehensive, well-vetted discussions of Israel’s attack plans. However, since they raise concerns about Israel’s operational security, they could potentially prompt Israel to delay its attack.
• Some commentators will likely decry the reports as new evidence that the US spies on its allies, but we don’t see that as a major story. More importantly, the reports may have been deliberately released by a lower-level employee in the US government or military who is disgruntled or seeking to undermine Israel. In that case, further embarrassing or damaging reports could be released in the coming days.

US Military: The Defense Department is reportedly developing a new program in which chief technology officers and other senior tech professionals in the private sector could take positions in the reserves. The initiative would be similar to existing programs in which medical and legal professionals serve as part-time military officers. The tech reserve officers would help the armed services with short-term projects in cybersecurity, data analytics, and other areas, illustrating how the modern military is built around information processing and other advanced technologies.

US Labor Market: Over the weekend, Boeing and the International Association of Machinists and Aerospace Workers reached a tentative deal for a new contract, potentially ending the union’s month-long strike against the company. Under the deal, workers represented by the union would receive a 35% pay hike spread over four years, an up-front bonus of $7,000, and increased company contributions to their retirement accounts.

• The workers are due to vote on the deal this Wednesday. If they vote to approve, Boeing could start producing its key airframes over the coming weeks and begin to stem the big financial losses it has incurred because of the strike.
• Settlement of the strike could also remove one important risk to US economic growth. Not only has Boeing shut down much of its production and announced layoffs, but key suppliers have started to do the same. If the new contract is approved, it could prevent any further production stoppages and layoffs in the key aerospace sector.

US Oil Services Industry: As it released a disappointing report on third-quarter revenue and profit growth last Friday, oilfield services giant SLB warned that energy firms are becoming more cautious about spending both in the US and abroad. According to CEO Olivier Le Peuch, the spending restraint reflects low global oil prices, which he in turn attributed to weak economic growth in China and elsewhere, surging rising oil production outside the Organization of the Petroleum Exporting Countries, and uncertainty about OPEC+ supply releases.

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