Today is Labor Day in the USA. This holiday is traditionally celebrated on the first Monday of September and aims to honor the contribution of employees to the development of the economy and society.
At the same time, activity on Wall Street is expected to pick up as bankers and investors return from summer vacations. In the article The Wall Street Journal Expectations that the coming period will be particularly dynamic for the world’s main stock exchange are discussed.
After markets rallied for most of the year, the US economy is at a potential inflection point. The euphoria that pushed some companies’ stocks to record highs has waned in recent weeks amid troubling signs that the labor market may be weakening. Traders are also waiting to see how aggressively the Federal Reserve will cut interest rates later this month after a historic fight against inflation.
Possible consequences of the revival of activity on Wall Street for Ukraine and the world economy
The return of bankers and investors from vacations is often accompanied by an increase in trade and investment. This can lead to the growth of investments in various sectors of the economy, including the Ukrainian market.
The revival of activity can give new signals about the state of the world economy. If investors are optimistic, this may indicate the stabilization or growth of the economy, which will positively affect Ukraine’s export opportunities. On the other hand, if negative news appears on the market, it can lead to instability and a decrease in investment activity, which can negatively affect the economy of Ukraine.
Changes in investor sentiment and the US Fed’s decision on interest rates may have an impact on exchange rates, the value of stocks and bonds, which, in turn, will affect the economy of Ukraine.
Activity on Wall Street after Labor Day is often seen as an important indicator for the global economy as many investors return to active trading after a summer lull, which can affect markets around the world.
Important economic reports are often released during this period: data on employment, inflation and GDP, which can affect global markets. Many companies publish their quarterly reports, which can affect investor sentiment and, consequently, the markets.
Activity on Wall Street may reflect expectations for the US Federal Reserve’s interest rate decisions, which have global implications.
What is affected by the change in interest rates of the US Federal Reserve System
In turn, a change in the interest rates of the US Fed can affect global financial markets, the cost of borrowing, investments and inflation.
Thus, a decrease in interest rates in the United States can lead to a decrease in the value of the dollar, which will affect the exchange rates of other countries. This can make exports from other countries more competitive, but it can also lead to volatility in foreign exchange markets.
Lower rates could spur investment in emerging economies as investors look for higher yields outside the US. This can lead to an increase in capital investments in countries such as Ukraine.
Lower rates will make the cost of borrowing attractive for companies and governments around the world and stimulate economic growth. However, it can also lead to an increase in the debt load. Finally, lower rates can boost inflation as cheaper credit stimulates consumer spending and investment.
Signs of weakness in the US labor market
Alarming indicators of the weakness of the American labor market are the growth of unemployment to 4.1%, (this is the highest indicator in almost three years). In June, 206,000 new jobs appeared. At the same time, the number of initial applications for unemployment benefits increased to 232,000, and the number of extended applications reached 1.86 million, which is a record for the past three years.
While wages continue to rise, the pace of growth has slowed to 3.9% per year, also the slowest rate since 2021.
These indicators suggest that the US labor market is starting to lose its strength, which could affect the Federal Reserve’s decision on interest rates.
Weakening of the labor market in the USA – consequences for the world economy
A slump in the labor market can lead to a decrease in wages, which, in turn, will help curb inflation, lower consumer prices, and stabilize the monetary policy of central banks around the world. Among other possible consequences is a decrease in imports into the US, as consumers will have less money to spend. This can improve the US trade balance, which can have a positive effect on the dollar and the world economy in general.
A weaker U.S. labor market could lower interest rates in the U.S. and abroad and boost economic growth in emerging markets and spur investment in projects around the world.
A decrease in global demand can be mentioned among the possible negative consequences. Lower spending in the U.S. means less demand for goods and services from other countries, which could slow economic growth.
Uncertainty caused by the weakening of the US labor market could lead to volatility in financial markets. Investors may become more cautious, leading to lower prices for stocks and other financial instruments.
In general, economic uncertainty in the US could lead to increased geopolitical tensions as countries look for ways to protect their economic interests. This could have negative consequences for global trade and cooperation.
Tatyana Morarash
