Real Time Economics: U.S. Blacklist Squeezes Chinese Companies

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Trump administration sanctions are reverberating beyond the U.S. border, Europe goes to the polls, the Fed debates inflation and honey prices aren’t so sweet. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Huawei Feels the Heat

Huawei’s foreign partners are backing away from the Chinese telecommunications giant after the U.S. blacklisted it, imperiling its global business, Dan Strumpf and Mayumi Negishi report.

• U.K.-based chip design company Arm Holdings is suspending its business with the Chinese company. Licenses from Arm are crucial to the underlying designs for an array of Huawei-made chips.
• Mobile-phone carriers in Japan and the U.K. have suspended launches of Huawei smartphone models over concerns that U.S. curbs will jeopardize the phones’ performance.
• The fallout follows the Trump administration’s escalating trade fight with China. The White House has raised tariffs and targeted individual companies as it seeks to rebalance commercial relations.

WHAT TO WATCH TODAY

European parliamentary elections begin.

The European Central Bank releases minutes from its April 9-10 meeting at 7:30 a.m. ET.

U.S. jobless claims are expected to rise to 215,000 from 212,000 a week earlier. (8:30 a.m. ET)

IHS Markit’s U.S. flash manufacturing index for May is expected to tick down to 52.5 from 52.6 at the end of last month. (9:45 a.m. ET)

U.S. new-home sales for April are expected to fall to an annual pace of 673,000 from 692,000 a month earlier. (10 a.m. ET)

The Kansas City Fed’s manufacturing survey for May is expected to rise to 7 from 5 a month earlier. (11 a.m. ET)

The Richmond Fed’s Thomas Barkin, Atlanta Fed’s Raphael Bostic, San Francisco Fed’s Mary Daly and Dallas Fed’s Robert Kaplan speak at a conference on technology-enabled disruption at 1:00 p.m. ET.

President Trump delivers remarks on supporting America’s farmers and ranchers at 3:15 p.m. ET.

Japan’s consumer-price index for April is out at 7:30 p.m. ET.

TOP STORIES

You Just Made the List, Buddy

The U.S. is considering expanding the list of Chinese companies on a blacklist for U.S. suppliers, Ryan Tracy and Dan Strumpf report.

• The Commerce Department is reviewing whether other Chinese companies should join Huawei on its so-called entity list. U.S. companies need a special license to do business with such firms—a sanction that can cut foreign firms off from U.S. suppliers.
• Members of Congress have already urged the Trump administration to consider sanctions on Hangzhou Hikvision Digital Technology and Dahua Technology. Both firms make video surveillance equipment.

Trojan Horse

Elections this week are poised to create a new headache for the European Union: EU-skeptic parties are set gain strength inside the European Parliament, Valentina Pop and Giovanni Legorano report.

• Remain. The EU-skeptic parties’ resist-from-within strategy aims to reassure Europe’s often risk-averse voters that there will be no Brexit-style experiments, while still speaking to those frustrated with Europe’s direction.
• For the EU, it means more resistance for any further integration. Common policies could become harder to agree on, and some existing rules could be harder to maintain.
• American companies are joining European peers in urging employees to vote. The fear? A low turnout could help anti-EU parties that would seek to roll back European integration, which has greatly benefited multinationals.

 

The Fed: Minute by Minute

Federal Reserve officials were broadly comfortable with their make-no-moves posture on interest rates at their April 30-May 1 policy meeting, according to minutes releases Wednesday. Perhaps the most interesting topic on tap was inflation. The WSJ’s Nick Timiraos writes:

• Many officials at the meeting said they expected a recent soft patch in inflation would be temporary. That echoes Chairman Jerome Powell’s suggestion that one-off price declines had skewed recent inflation readings lower.
• But several officials expressed concern that inflation expectations could become fixed at uncomfortably low levels “if inflation did not show signs of moving up over coming quarters.”
• Off target? Fed economists don’t think inflation will stick at the central bank’s target: “Core [personal-consumption-expenditure] price inflation was expected to move up in the near term but nevertheless to run just below 2% over the medium term. Total PCE price inflation was forecast to run a bit below core inflation in 2020 and 2021.”
• Fed officials believe 2% inflation is consistent with a healthy economy. Still, the minutes revealed no discussion of a rate cut.

Honey Prices Start to Sting

Rising demand, meet flat supplies. Global honey prices are at their highest levels in years, due to a new wave of consumer demand and declining bee populations that are hampering mass production. In recent years, honey has become popular with people looking for healthier alternatives to cane sugar and high-fructose corn syrup. In addition, it is being used more as an ingredient in shampoos, moisturizers and other personal-care products. The result: Global prices have climbed about 25% since 2013, while the cost of sugar has fallen around 30% over the same time frame, Lucy Craymer reports.

What We’re Following

Debt limit: Treasury Secretary Steven Mnuchin said the government could run out of room to keep paying its bills in full and on time in late summer unless Congress raised the federal borrowing limit. The Treasury Department has been using extraordinary measures to keep making on-time payments to bondholders and other federal-benefit recipients since March 2.

The eurozone economy’s outlook isn’t terribly bright: “Jobs growth slipped to the joint-lowest since 2016 as firms scaled back expansion plans in the light of weak sales. Optimism about the future meanwhile slumped to a four-and-a-half year low,” IHS Markit said alongside the release of its composite Purchasing Managers Index for the currency bloc. Manufacturing activity is contracting and fell to a two-month low in April. Service-sector activity expanded at the slowest pace in four months.

Meanwhile, in the world’s fifth-largest economy: India’s Prime Minister Narendra Modi won re-election with a strong mandate, setting the stage for him to pursue more ambitious policies both at home and abroad. Many hope Mr. Modi will ride his momentum to roll out the tough economic changes—such as loosening the rules around hiring and firing employees. If India’s markets opened up and its growth accelerated, it could become an important engine of global growth.

TWEET OF THE DAY

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WHAT ELSE WE’RE READING

Raj Chetty wants to change the way we learn economics. The Harvard professor this spring unveiled Economics 1152: Using Big Data to Solve Economic and Social Problems. “There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers. The material is relatively cutting-edge. Of the 12 papers students are required to read, 11 were released in 2010 or after. Half of the assigned papers were released in 2017 or 2018,” Dylan Matthews writes at Vox.

The gender pay gap extends to the art world. “In a new paper, four academics show that art made by women sells for lower prices at auction than men’s, and suggest that this discount has nothing to do with talent or thematic choices. It is solely because the artists are female,” the Economist reports.

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from Real Time Economics https://on.wsj.com/2EsycQ1