Key Takeaways
- Economists forecast a "split-screen" U.S. economy with stronger growth driven by AI investment, but persistent weak job gains and sticky inflation.
- French President Emmanuel Macron is battling a deepening political crisis, reappointing Prime Minister Lecornu amidst a motion of no-confidence and calls for stability.
- Ukrainian President Volodymyr Zelenskiy has reiterated calls for sustained sanctions against Russia and held discussions with U.S. President Donald Trump on bolstering Ukraine's critical air defense systems.
- A second group of 13 Israeli hostages has been handed over to the Red Cross in Gaza as part of an ongoing ceasefire agreement.
- South Korea is seeking alternatives to a U.S. demand for a $350 billion upfront payment in a proposed tariff reduction deal, citing financial instability concerns.
U.S. Economy: Stronger Growth, Weak Job Gains, and Sticky Inflation
The U.S. economy is entering a "split-screen" phase, characterized by improving growth prospects alongside persistent challenges in the labor market and inflation, according to a recent Wall Street Journal survey of economists. Prospects for U.S. economic growth are looking up, with economists surveyed by The Wall Street Journal anticipating a 1.7% year-over-year increase in inflation-adjusted GDP for the fourth quarter of this year, a notable rise from the 1% forecast in July. This improved outlook is largely attributed to a booming investment in artificial intelligence and a reduction in risks associated with tariffs.
Despite stronger growth, the labor market is expected to remain a weak spot. Forecasters now predict employers will create only 15,000 jobs per month in the current quarter, a significant drop from over 50,000 in the July survey. However, this slower job growth is not expected to lead to a substantial increase in unemployment, as the Trump administration's immigration policies are reducing the overall labor supply, keeping the jobless rate around 4.5% over the next year, compared to 4.3% in August. Economists also anticipate that the Federal Reserve will cut interest rates slightly faster than previously expected, though sticky services inflation is likely to keep the Fed's preferred PCE measure above its 2% target for the foreseeable future.
French Political Turmoil Deepens Amid Calls for Stability
French President Emmanuel Macron is grappling with a severe domestic political crisis, asserting his commitment to ensuring stability in the country. Macron has publicly blamed political forces attempting to destabilize Prime Minister Sébastien Lecornu for the current sense of disorder in France. This comes as a motion of no-confidence has been filed against the Lecornu government by a coalition of opposition parties, including Ultramarins, communists, ecologists, and the entire Insoumis group.
Lecornu was recently reappointed as Prime Minister by Macron, days after his dramatic resignation and the collapse of his new government after just 14 hours. This unprecedented move underscores the depth of the political gridlock, with opposition parties criticizing it as a sign of Macron's unwillingness to broaden the government's political scope. The ongoing political uncertainty is expected to weigh on business and consumer confidence, with France's central bank forecasting an impact on economic growth, projected at a modest 0.7% in 2026.
Ukraine Reinforces Air Defense, Urges Continued Sanctions on Russia
Ukrainian President Volodymyr Zelenskiy has emphasized the "absolutely vital" need for air defense support for Ukraine, following discussions with U.S. President Donald Trump. Zelenskiy confirmed that he and Trump discussed strengthening Kyiv's air defense, resilience, and long-range capabilities, as well as details related to the energy sector, describing their conversation as "very productive". The discussions reportedly included the potential supply of Tomahawk cruise missiles for Ukraine, a move that Russia has expressed deep concern over, warning of a dramatic escalation.
Furthermore, Zelenskiy has reiterated his strong call for the international community not to ease sanctions against Russia. He argues that sanctions and tariff policies targeting Russia's energy sector and other critical exports are essential to halt Moscow's war machine. Despite earlier challenges, Zelenskiy stated that Ukraine no longer faces a significant shortage of weapons, with over 40% of weapons used at the front now being domestically produced or co-produced.
Hostage Releases Continue in Gaza Under Ceasefire Deal
In a significant development, 13 additional hostages have been handed over to the Red Cross in Gaza, marking a second group released as part of a ceasefire agreement between Israel and Hamas. This follows the earlier release of seven Israeli hostages, who were transferred to the Red Cross in northern Gaza before being moved to Israeli military personnel.
The Israeli military confirmed the Red Cross vehicles were en route to a second meeting point in southern Gaza for the transfer of more hostages. In total, 20 living hostages kidnapped during the October 7, 2023, attack are expected to be released today, alongside approximately 2,000 Palestinian detainees under the ceasefire deal. Celebrations erupted in Tel Aviv's Hostages Square as news of the releases spread, with families eagerly awaiting the return of their loved ones.
South Korea Pushes Back on U.S. $350 Billion Upfront Payment Demand
South Korea is pushing back against a U.S. demand for a $350 billion upfront investment as part of a trade deal aimed at reducing tariffs. The proposed agreement, reached in July, would see U.S. tariffs on South Korean goods cut from 25% to 15%. However, Seoul's top national security adviser, Wi Sung-lac, stated that such a massive cash outlay is unrealistic and could destabilize the country's economy.
South Korea's initial pledge of $350 billion towards U.S. projects was intended to be structured through loans, guarantees, and equity investments, not as an immediate cash payment. With South Korea's foreign exchange reserves currently standing at approximately $410 billion, an upfront payment could trigger a severe financial crisis. Seoul is actively working on alternative proposals and aims to finalize a trade deal with the United States during the upcoming APEC summit.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.