US GDP upgrade, jobless data dim Fed cut prospects

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

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1.

Data clouds: The US economy grew in the second quarter at the fastest pace in nearly two years after the Bureau of Economic Analysis revised GDP up to a 3.8% annualised rate from the previously reported 3.3%. The stronger growth reflected a 2.5% increase in consumer spending and a 7.3% rise in business investment, while a sharp narrowing of the trade deficit added to output following a surge in imports earlier in the year. Other data showed orders for business equipment rose in August amid an artificial intelligence spending boom, and the goods trade deficit contracted 16.8%, as imports plunged. Corporate profits increased 0.2% in the second quarter, much lower than initially projected. Initial applications for unemployment benefits fell by 14,000 to 218,000 last week, the lowest since mid-July, while continuing claims stood at 1.926 million. US Treasury yields reached three-week highs after the stronger-than-expected GDP and jobless claims data led traders to scale back expectations of further cuts. Meanwhile, Dallas Fed President Lorie Logan said the central bank should prepare to replace the federal funds rate with an overnight rate tied to repurchase agreements collateralised by Treasuries. (Capital Brief)(US BEA)

2.

Central stand: Every living former chair of the US Federal Reserve and a bipartisan group of former top economic officials have urged the Supreme Court to deny President Trump’s attempt to remove Fed Governor Lisa Cook. In an amicus brief filed Thursday, they warned her dismissal would erode public confidence in the Fed’s independence and threaten the long-term stability of the US economy. Signatories include former Fed chairs Janet Yellen, Ben Bernanke and Alan Greenspan, and former Treasury secretaries Hank Paulson, Robert Rubin, Lawrence Summers and Timothy Geithner. They argued Cook’s removal would compromise the Fed’s mandate and ability to fight inflation. Trump announced Cook’s firing in August after mortgage fraud allegations by Federal Housing Finance Agency Director Bill Pulte, which she denies and has not been charged over. A federal judge blocked the move, an appeals court upheld the ruling, and the administration is now asking the Supreme Court to reverse it. (Capital Brief)(US Supreme Court)(FT)(Bloomberg)

3.

Ta(i)ngled up: AI cloud provider CoreWeave inked a deal to expand its partnership with OpenAI by USD6.5 billion ($9.92 billion), the third major partnership expansion between the two companies this year. The additional funding brings the total value of CoreWeave and OpenAI’s agreements to USD22.4 billion, with OpenAI having struck an initial cloud deal with CoreWeave in March worth up to USD11.9 billion, followed by a USD4 billion top-up in May. CoreWeave said that the new funding will be used to power the training of its next generation AI models. Meanwhile, Alphabet’s Google agreed another USD3 billion data centre deal with Cipher Mining as the tech giant looks to bolster its computing power for artificial intelligence. In the second deal struck between the companies over the past two months, Google will guarantee USD1.4 billion of AI computing startup Fluidstack’s USD3 billion, 10-year agreement with Cipher and will gain the right to buy a 5.4% stake in Cipher. (Capital Brief)(CoreWeave)(Bloomberg)

4.

Shutdown purge: The Trump administration directed federal agencies to prepare for mass layoffs if funding lapses on October 1. According to a memo from the Office of Management and Budget, which has led Trump’s campaign to shrink the federal workforce, agencies are to consider “reduction in force” plans for programs whose funding will lapse and that are “not consistent with the President’s priorities.” Unlike in past shutdowns, the directive would eliminate positions rather than furlough workers. Democratic leaders dismissed the move as intimidation and said they would not back down. The government is on the brink of its 15th partial shutdown since 1981, after lawmakers failed to agree on a discretionary funding plan covering a quarter of the USD7 trillion budget. Senate Democrats rejected a Republican stopgap bill passed last week, demanding it reverse healthcare cuts. Republican House Speaker Mike Johnson cancelled the final scheduled sitting days, and Trump later withdrew from talks. (Bloomberg)(Reuters)(AP)

5.

Frozen assets: German Chancellor Friedrich Merz called on the EU to use frozen Russian assets to unlock an interest-free loan of EUR140 billion ($249.6 billion) for Kyiv to finance the war in Ukraine. In an FT op-ed, Merz argued that the move would demonstrate “staying power” against aggression from Russia and that now is the time to apply “an effective lever that will disrupt the Russian president’s cynical game of buying time” and force him to negotiate. He said the loan would only be repaid after Russia compensated Ukraine for the damage it has caused, and that the funds should be directed exclusively for the purchase of military equipment, not to cover Ukraine’s general budget. Meanwhile, Denmark is investigating a second wave of “hybrid attacks” by drones at several of its airports on Wednesday night, stating that a professional actor was behind the incidents which shut down airports across the country. (Friedrich Merz)(FT)(Capital Brief)

6.

Prime trap: Amazon will pay USD2.5 billion ($3.8 billion) to settle US Federal Trade Commission allegations that it used “deceptive” tactics to enrol people in Prime and made cancellation “exceedingly hard.” The settlement, announced just days into a Seattle jury trial, includes a USD1 billion civil penalty and USD1.5 billion in refunds for an estimated 35 million customers, making it one of the largest in the regulator’s history. Amazon did not admit or deny wrongdoing. Under the agreement, Amazon must create a “clear and conspicuous” way to decline Prime, clearly disclose terms during enrolment, obtain express consent before charging, and provide “easy” cancellation. The FTC said Amazon can no longer use a “No, I don’t want Free Shipping.” button. Senior executives Neil Lindsay and Jamil Ghani are also barred from engaging in the practices. FTC Chair Andrew N Ferguson called the settlement a “record-breaking” win against “sophisticated subscription traps.” (Capital Brief)(US FTC)(Bloomberg)(NYT)

7.

Gaza surveillance: Microsoft disabled cloud and AI services used by a unit of Israel’s Ministry of Defense after an internal review found evidence supporting media reports of a surveillance system in Gaza and the West Bank. The Guardian, Israeli-Palestinian publication +972 Magazine and Hebrew-language outlet Local Call reported in August that Israel’s military intercepted millions of Palestinian phone calls, stored them on Microsoft Azure servers and used the data to select bombing targets in Gaza. Microsoft President Brad Smith said the company’s rules bar customers from using its products for mass surveillance of civilians. He confirmed the review found evidence of Israel’s use of Azure storage in the Netherlands and AI services. Microsoft told the ministry it would disable specified subscriptions and services but continue cybersecurity support for Israel and other Middle Eastern countries. The decision follows months of employee and activist protests, including an August sit-in at Smith’s office that led to arrests and employee firings. (Capital Brief)(Microsoft)(Bloomberg)(WSJ)(Reuters)

8.

Le guilty: Former French President Nicolas Sarkozy was sentenced to five years in jail on Thursday, after a Paris court found him guilty of criminal conspiracy over alleged payments by the late Libyan dictator Muammar Gaddafi for his 2007 presidential campaign. Sarkozy was cleared of more severe corruption charges. The judge said that prosecutors will call on Sarkozy to head to jail within one month, meaning he will spend time in prison even if he appeals the ruling. While the court ruled that there was no proof that Sarkozy made a deal with Gaddafi, nor that money that was sent from Libya reached Sarkozy's campaign coffers, he was convicted of criminal conspiracy for having let close aides get in touch with people in Libya to try and obtain campaign financing. As Sarkozy left the courtroom he told reporters: “If they absolutely want me to sleep in prison, then I’ll sleep in prison…This injustice is a scandal.” (Capital Brief)(Reuters)(Bloomberg)(Politico)(BBC)