US economy in soft landing ahead of elections

Good morning. Here's what happened overnight and what you need to know today.

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1.

Election economics: The US economy grew 2.8% in the third quarter, driven by strong consumer demand and bolstered by business investment and government spending, particularly in defence, according to a preliminary estimate by the Commerce Department. Days before the 5 November US presidential election, the data came slightly lower than the 3% GDP growth expected, but shows the economy achieving a “soft landing” with resilient growth and easing inflation despite high interest rates. Consumer spending rose 3.7%—its fastest pace since early 2023—while inflation, measured by the personal consumption expenditures price index, eased to 1.5% from 2.5% in the prior quarter. Business equipment spending surged 11.1%, though high borrowing costs continued to weigh on housing. Defence spending added over half a percentage point to GDP growth. “What’s not to like?” said Chris Low, chief economist at FHN Financial. “Solid GDP growth fuelled by strong consumption and strong capital equipment spending, all accompanied by inflation sliding back toward 2%.” (Capital Brief)(Bureau of Economic Analysis)(The Wall Street Journal)(Reuters)(The New York Times)

2.

Super exit: Super Micro Computer said its auditor, Ernst & Young resigned following integrity concerns and issues related to governance, internal financial controls and transparency at the AI server maker. EY’s exit follows Super Micro’s delayed financial filings and an August report from Hindenburg Research alleging accounting manipulation. Last month, the DOJ also launched an investigation into claims from a former employee that the company overstated revenue. In late July, EY raised issues around "governance, transparency, and completeness of communications to EY,” prompting Super Micro to form a special board committee and engage Cooley LLP and forensic accounting firm Secretariat Advisors. As new information emerged, EY cited doubts about Super Micro’s commitment to integrity and board independence from management, leading to its resignation. Super Micro’s shares plunged over 34% to $32.20, trimming earlier AI-driven gains to a 16% increase this year. SMCI disagreed with EY’s decision, saying it doesn’t expect any restatement of prior financials. (Capital Brief)(Super Micro Computer statement)(Reuters)(Bloomberg)

3.

Tax tally: UK Chancellor Rachel Reeves unveiled plans to ramp up borrowing alongside a £40 billion ($78.87 billion) tax increase plan in her debut budget, targeting National Insurance, capital gains, and inheritance taxes alongside a VAT charge on private school fees, according to media reports. Amid a £70 billion spending boost, Reeves plans to invest an additional £100 billion over five years to enhance public services and infrastructure. The measures aim to stabilise finances and position the UK for growth, despite an anticipated record tax burden. Investors reacted to the borrowing announcement, with gilt yields rising to 4.36%. The budget, which Labour views as transformative, is one of the biggest tax-raising events in recent decades, according to Bloomberg. (BBC)(Bloomberg)(NYT)

4.

Trump team: John Paulson, a long-time ally of Donald Trump and a candidate for Treasury secretary in a potential second Trump administration, plans to collaborate with Elon Musk to drastically cut federal spending, primarily by eliminating green energy subsidies established under the 2022 Inflation Reduction Act. Musk, expected to lead a government efficiency commission if Trump wins, this week said he could cut at least USD2 trillion from the federal budget, but didn’t say how. Paulson is one of several people Trump and his allies have considered for Treasury secretary, The Wall Street Journal said citing sources. He told the paper his top priority would be to extend Trump’s 2017 tax cuts while focusing on reducing spending in renewable energy, citing them as inefficient and uneconomic. He said he sees his potential remit extending to energy and trade, advocating for “strategic tariffs”. Though a repeal of green-energy tax credits is estimated to generate USD921 billion over a decade, it would require Congressional approval. (WSJ)

5.

Voter purge: The US Supreme Court allowed Virginia to continue purging around 1,600 voter registrations from its rolls ahead of the 5 November election, granting an emergency appeal by Republican governor Glenn Youngkin, who initiated the purge, claiming it targets suspected noncitizens based on data from the Department of Motor Vehicles. The decision, which lacked a written explanation, came over dissent from three liberal justices and overturns a lower court order blocking the purge under the federal National Voter Registration Act's 90-day pre-election “quiet period.” The purge is contested by voting-rights advocates and the Justice Department, who argue it risks disenfranchising eligible voters. Virginia will allow those affected to re-register on Election Day. (Associated Press)(Bloomberg)(NYT)

6.

Spanish downpour: At least 72 people have died in Spain’s deadliest floods since 1996 as torrential rains devastated eastern regions, including Valencia. In just eight hours, rainfall equal to a year's average drenched areas, submerging roads, farmland and cities, media reported. Valencia’s citrus farms—crucial to Spain's economy—were badly affected, while 150,000 homes lost power and rail lines were disrupted. Floodwaters swept away bridges, cars and entire streets, forcing residents to climb onto rooftops to await rescue. Prime Minister Pedro Sánchez promised aid, with emergency and military personnel deployed to assist. Red alerts remained as the storm shifted towards Catalonia, with new warnings in place. Spain declared a three-day mourning period, and European leaders, including European Commission president Ursula von der Leyen, expressed support. Scientists linked the increased severity of storms to climate change, highlighting the Mediterranean's warming waters as a major factor. (Associated Press)(Reuters)

7.

Chip choice: Alphabet's Google Cloud said Spotify and Paramount Global will use its newly designed Arm-based Axion chip for their streaming services. Google has made the new Axion chip, 60% more energy-efficient than traditional CPUs to compete for developer’s budgets against offerings from rivals Intel and AMD. Google is the latest major cloud computer provider to offer a chip made with Arm technology. Amazon, Microsoft and Ampere Computing also offer Arm-based CPUs, among others. Previously used internally, the Axion is now available to all Google Cloud customers, with Google planning to make it a primary offering for users going forward. (Reuters)

8.

VW crunch: Volkswagen reported a 64% drop in quarterly net profit, amid slumping sales in China and rising costs in Europe, hitting its lowest operating margin since the pandemic. CFO Arno Antlitz said the results highlight the “urgent need for significant cost reductions” in what he said was a challenging environment. He reiterated the VW brand needs to find over €10 billion in cost savings to remain competitive. The results came hours before the 87-year-old company was due to resume negotiations with unions over its restructuring plans, including its first-ever factory closures in Germany and potential wage cuts for some employees. Labour leaders, meanwhile, blame management for poor decision-making and are demanding a 7% pay rise. Net profit declined to €1.58 billion from €4.35 billion last year, while its operating profit margin dropped to 3.6%. “VW is not earning the money it needs to spend for all the new products,” Antlitz said. (Capital Brief)(Volkswagen release)(Bloomberg)(Reuters)