Jobs and Oil Prices Are Keeping Markets on Edge

Friday’s jobs report could bolster the view that the American economy is holding steady, but an oil price shock could undercut that sense of calm.

by · NY Times
Economists expect today’s job report to maintain a sense of economic stability.
Credit...Scott McIntyre for The New York Times

Why the jobs report is so pivotal

With just over a month to go until Election Day, Friday’s jobs report, set to be published at 8:30 a.m. Eastern, has outsize importance. Investors will look for clues to what the Fed might do next with interest rates, as well as how the economy is doing.

But that isn’t the only number on investors’ minds. Further rises in oil prices, especially given an ambiguous statement by President Biden on whether Israel would attack Iran’s oil fields, could have just as huge economic consequences.

What economists expect from Friday’s report: Companies probably added 150,000 jobs in September, up from 142,000 in August, and the jobless rate stayed at 4.2 percent, according to a Bloomberg survey of economists.

Such a reading would boost hopes that cooler inflation, stable growth and low unemployment are here to stay. That rosy economic picture was bolstered on Thursday with figures showing that services activity last month expanded at their fastest pace since February 2023.

That will probably inform the Fed’s thinking about rates, after it cut borrowing costs by a half percentage point last month for its first reduction in four years. Jay Powell, the Fed chair, suggested this week that the central bank was leaning toward quarter-percentage-point cuts in the coming months: “This is not a committee that feels like it is in a hurry to cut rates quickly,” he said at a conference.

Policymakers are still watching the labor market closely, however. The Fed is trying to slow growth just enough to guide inflation to its 2 percent target without overchilling the economy and disrupting the job market. Policymakers’ big worry is that a sharp slowdown could tip the U.S. into recession.

Some indicators are causing concern. The underemployment rate has been rising, while the number of people employed in temporary roles is shrinking.

And then there’s the wildcard of geopolitics, especially oil. The price of Brent crude, the international benchmark, remains at a monthlong high after Biden’s comments on Thursday about “discussing” a potential Israeli strike on Iranian oil fields. West Texas Intermediate, the U.S. oil benchmark, also rose sharply after Biden’s remarks.

Analysts have estimated that such a move, and a potential response by Tehran, could send oil prices soaring by $13 or more.

HERE’S WHAT’S HAPPENING

The European Union votes to approve new tariffs on electric vehicles in China. The bloc will impose levies of up to 45 percent over five years, following investigations into whether China illegally subsidized its E.V. industry. The move, which came despite reported opposition by Germany, the E.U.’s biggest economy, will ratchet up trade tensions between the bloc and China; Beijing has threatened to retaliate.

Hurricane Helene’s death toll hits 215. That makes the storm the deadliest to hit the United States since Katrina in 2005, with the authorities still searching for those unaccounted for across the Southeast. Helene’s devastation has incurred huge economic costs, especially because only a fraction of the affected homes in inland counties had flood insurance.

Spirit Airlines is reportedly weighing a bankruptcy filing. The low-cost airline is in talks with bondholders about a potential Chapter 11 filing, according to The Wall Street Journal, months after it called off a $3.8 billion sale to JetBlue amid regulatory opposition. Shares in Spirit tumbled 24 percent in after-hours trading on the report; analysts had warned that the carrier would struggle to survive.

Tesla recalls most Cybertrucks sold in the U.S. The carmaker said that more than 27,000 of the pickup trucks suffered from rearview camera delays that increased the risk of crashes, a problem that should be fixable with a software update. Separately, the company told employees that its chief information officer, Nagesh Saldi, was stepping down, days before a long-awaited presentation about its Robotaxi efforts.

How the ports strike ended

That was fast. A strike at East and Gulf Coast ports that looked poised to wreak havoc on the U.S. economy was suspended after just three days.

Dockworkers may still walk off the job if their union, the International Longshoremen’s Association, can’t reach a new contract with major shipping companies. But pressure from the White House and dire warnings about the costs of a stoppage appeared to break the impasse.

The White House pressed both sides toward a deal. President Biden had made it clear that he wouldn’t use federal law to force dockworkers back to work, with Democrats afraid of alienating organized labor in an election year. (Two prominent unions have chosen not to endorse Vice President Kamala Harris.)

But the Biden administration jawboned both shippers and union officials. Among officials’ arguments, according to The Times:

  • Reopening the ports was a patriotic duty that would expedite aid to victims of Hurricane Helene.
  • Shipping companies could afford to pay workers more, given the bumper profit they earned in 2021 and 2022 — an argument that the I.L.A. has also made.

The union ultimately prevailed. Shippers have offered to increase pay by about 62 percent over six years — less than the 77 percent the I.L.A. had first sought, but well above the 40 percent that maritime companies had originally proposed.

But the fight isn’t done yet. The union is still battling to limit the amount of automation used at ports and seeking improved retirement benefits and guaranteed higher pay for new dockworkers.

I.L.A. workers could walk off the job in January if a new contract isn’t reached by then. And Harold Daggett, the union’s pugnacious leader, has indicated that he’s up for a fight.

There still might be consequences from the brief strike. Critics say the higher wages could eventually be passed onto importers, exporters and, eventually, consumers.

Behind OpenAI’s big credit line

One of the biggest fund-raising rounds in recent memory wasn’t enough for OpenAI: The company behind ChatGPT announced on Thursday that it also had secured a $4 billion credit line from an array of big banks.

The debt might be on the expensive side — the interest rate on any borrowing right now is about 6 percent — but there are big incentives for OpenAI to line up the financing.

What OpenAI is getting: a $4 billion revolving line of credit (a revolver, in Wall Street parlance), with CNBC reporting that it could be expanded by an additional $2 billion. The financing was arranged by nine big banks: JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, Santander, Wells Fargo, the Japanese bank SMBC, UBS and HSBC.

It’s effectively the corporate equivalent of a credit card, with OpenAI able to borrow up to a certain limit and the line being restored when existing debt is paid back.

OpenAI needs lots of money, even beyond the $6.6 billion in equity investments that it announced on Wednesday. Developing and running artificial intelligence software requires hugely expensive amounts of computing power — OpenAI is expected to lose at least $5 billion this year — and the company is racing to out-innovate far richer rivals including Alphabet, Amazon and Meta.

Debt financing also won’t dilute existing shareholders. OpenAI’s table of investors is getting increasingly crowded, especially after its two most-recent fund-raising rounds. Getting more money by issuing more equity would further strain the company’s capital table, even if it buys back employees’ shares.

Yes, drawing down on the revolver has costs. But rates are going down and borrowing is less costly than selling new stock.

Banks benefit from revolvers, too. Lenders are often eager to extend them to fast-growing privately-held start-ups, seeing the debt as a chance to deepen relationships with clients that may eventually go public or strike big acquisitions.

Consider Facebook, which in 2011 secured a $1.5 billion credit line from several big banks — many of which ended up underwriting the social network’s I.P.O. a year later.

  • In other A.I. news: Cisco is said to be near a deal to invest in CoreWeave, which sells remote A.I.-computing services, at a $23 billion valuation.

“I just don’t trust OpenAI for obvious reasons. … It is closed, for-maximum-profit AI.”

— Elon Musk, at a recruiting event for his xAI start-up. The party was held at the original offices of OpenAI, the start-up that Musk co-founded with Sam Altman and others before a falling out.

Are generic weight-loss drugs past their peak?

The explosion in demand for next-generation weight-loss and diabetes drugs led to a sharp jump in the fortunes of Novo Nordisk and Eli Lilly — and of companies quick to produce copycat products.

But the F.D.A.’s declaration that there is no longer a shortage of tirzepatide, the substance in Lilly’s Zepbound and Mounjaro, threatens to undercut the makers of generic versions.

The business of unbranded weight-loss drugs has boomed. Soaring demand for tirzepatide and semaglutide, the primary ingredient in Novo Nordisk’s Wegovy and Ozempic, sapped supplies of the drugs. That opened the door for so-called compounding pharmacies to create their own versions of the drugs over the past two years, something they’re allowed to do only when brand-name drugs are in short supply.

It isn’t clear how many people take compounded tirzepatide or semaglutide, but by some estimates millions of Americans do, whether for reasons of availability or of cost. (That has spurred worries about patients overdosing on the white-label alternatives.)

The F.D.A.’s declaration is starting to put an end to that business. Compounding pharmacies must stop producing generic versions of tirzepatide immediately. The agency hasn’t yet made a similar announcement about semaglutide, though Novo Nordisk has said it continues to ramp up production.

The blowback to affected companies was swift. Shares in Hims & Hers, a telehealth company that sells generic semaglutide, fell nearly 10 percent on Thursday on the news. Hims & Hers said in August that it had planned to eventually sell compounded tirzepatide as well.

Hims & Hers’ stock had been under pressure since August, when worries about an F.D.A. crackdown on compounded semaglutide began to emerge. (That said, they’re still up 92 percent year-to-date.)

Compounded-drug sellers pointed to a loophole. Federal law still allows the sale of compounded medicines outside of a shortage under certain circumstances, notably if the prescriptions are customized for individual patients. “Products that are not essentially copies can continue to be made,” a spokesman for Hims & Hers told The Wall Street Journal.

Noom, another seller of compounded semaglutide, said it might sell “personalized” treatments once the semaglutide drought has ended.

That exemption has its limits, however. The F.D.A. noted in its decision this week that pharmacies can’t compound a standard drug “regularly, or in inordinate amounts.”

THE SPEED READ

Deals

  • The N.F.L. is said to be in talks with David Ellison’s Skydance Media and RedBird Capital Partners on potential deals for some of the league’s media interests. (Bloomberg)
  • Hodinkee, a popular watch enthusiast site whose backers include LVMH, agreed to sell itself to the British retailer Watches of Switzerland. (NYT)

Elections, politics and policy

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