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Get ready, there’s a lot to keep tabs on today: Fed Chairman Jerome Powell sizes up the stock market in his first day on the job, the U.S. selloff ripples through global markets, economists expect the U.S. trade deficit to be the widest in more than nine years, credit markets appear unbothered by market tumult, Congress readies a stop-gap spending bill to avoid another shutdown, banks are closing branches at a breakneck pace, big rig orders surge, and bitcoin tumbles.
FIRST DAY ON THE JOB
Jerome Powell spent his first day as chairman of the Federal Reserve sizing up the largest stock selloff in 6½ years and the largest one-day point decline on record for the Dow Jones Industrial Average.
Mr. Powell and his colleagues made no public comment on the selloff and are unlikely to make any sudden moves that could further amplify market volatility, Nick Timiraos writes. The central bank was, however, an indirect player in the recent tumult—strong January wage gains prompted investor worries that rising inflation would force officials to raise interest rates more aggressively than expected.
Still, the stock drop could serve as a healthy correction of asset values that Fed officials have characterized as elevated for several months. This would allow the Fed to stick with its plans to raise interest rates three times this year.
U.S. MARKETS STABILIZING?
The Dow Jones Industrial Average’s biggest ever daily point plunge sent shock waves through global financial markets, sparking steep selloffs in equity benchmarks from Tokyo to Madrid even as U.S. stock futures showed signs of stabilizing.
Futures suggested the Dow would open slightly lower after earlier falling as much as 850 point in volatile trading, Riva Gold, Gregor Stuart Hunter and David Hodari report. The global tumult marked a sharp turnaround from the calm ascent of equity markets in recent months.
Although there was no clear catalyst for the erratic trading, analysts and investors highlighted recent worries about rising bond yields and higher inflation combined with elevated valuations, algorithmic trading, and an investor base that had grown somewhat complacent.
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WHAT TO WATCH TODAY
For the latest on fallout from the largest single-day point decline for the Dow Jones Industrial Average, follow the WSJ’s live markets coverage here.
U.S. trade numbers for December are out today at 8:30 a.m. E.T. The politically sensitive trade gap is expected to widen to $52 billion, which would be the biggest deficit since October 2008.
U.S. exports have been on the rise, just not as fast as imports. There are several underlying factors, including strong U.S. economic growth and healthy consumer demand. A weaker dollar should help mitigate those forces but in the meantime, political calculation may intervene.
President Donald Trump has taken steps to show he is ready to start implementing his long-promised “America First” trade policy. If he’s serious, it will be tough to ignore China. The Asian nation accounts for close to half of the U.S. trade deficit with the world. Last month, China reported its largest-ever annual trade surplus with the U.S.
The St. Louis Fed’s James Bullard speaks on the economy and monetary policy in Lexington, Ky., at 8:50 a.m. E.T.
The Job Openings and Labor Turnover Survey for December is out at 10 a.m. E.T. The report isn’t a market mover, but it does provide useful insight on the number of job openings, hires, layoffs and whether people are quitting their jobs (a sign of confidence in the labor market).
TOP STORIES
DEBT LIMIT ADDS TO VOLATILITY
Congress is gearing up to pass another short-term spending bill to avoid another government shutdown. Current funding expires at 12:01 a.m. on Friday.
Recall that lawmakers missed the last deadline as immigration became entangled in spending talks. That led to a short-lived shutdown and has some economists and investors worried that Congress could run up against the debt ceiling.
“By early March, Treasury may not be able to borrow new funds and could face a potential default,” says Societe Generale chief economist Stephen Gallagher. “Now, with political uncertainty, debt limit is folding into an elevated period of volatility.”
CREDIT MARKETS TO STOCK INVESTORS: CALM DOWN
One reassuring factor in global markets: People aren’t getting nervous about corporate credit.
The difference between yields on corporate bonds and less risky government debt continues to narrow, Mike Bird and Riva Gold report, suggesting that share-price declines aren’t because of widespread fears about the financial health of the world’s companies.
Previous U.S. equity-market corrections since the 2008 credit crisis have been matched by big moves in corporate-credit spreads.
DON’T FORGET GERMAN WAGES
Though the rise in U.S. wages has gotten a lot of attention of late, don’t forget about Germany. Germany’s powerful IG Metall union and employers reached a pay deal in the Baden-Wuerttemberg district early on Tuesday following weeks of intense negotiations.
It includes a pay increase of 4.3% from April and one-off payments of 100 euros each in January to March 2018, among other details. The labor contract holds for 27 months.
“In the broader European context, the fact that this wage settlement was agreed for a period of 27 months underlines that it is not the start of an upward wage-price spiral in Germany,” said ING economist Carsten Brzeski.
BANKS PRUNE BRANCHES
Banks are closing branches at the fastest pace in decades as they leave less profitable regions and fewer customers use tellers for routine transactions, Rachel Louise Ensign, Christina Rexrode and Coulter Jones report.
The number of branches in the U.S. shrank by more than 1,700 in the 12 months ended in June 2017, the biggest decline on record. Branch numbers fell again in the second half of 2017, adding to the thousands of locations closed following the financial crisis. That marks the longest stretch of closures since the Great Depression.
It’s a sign of the times and not a sign of financial doom, though there’s plenty of evidence to suggest that a decline in small-town banking is hurting economic development in rural areas of the U.S.
BIG RIG ORDERS CLIMB
Trucking companies in January ordered the most new big rigs in nearly 12 years, as they hustled to take advantage of one of the hottest freight markets in recent memory, Jennifer Smith and Bob Tita report.
A nationwide shortage of available trucks has sent shipping costs soaring, with retailers and manufacturers in some cases paying over 30% above typical rates to book last-minute transportation for cargo. Trucking companies, buoyed by strong demand and flush with cash following the recent tax overhaul, are accelerating plans to replace or expand their fleets.
The arrival of more trucks could stabilize the freight market. Of course, companies still have to find drivers, an increasingly difficult task in a tight labor market.
BITCOIN IS DOWN 70% FROM ITS PEAK
Speaking of volatility, bitcoin fell below $6,000 today, extending a steep slide that has wiped out over $200 billion of its market value in nearly two months.
The digital currency has fallen 70% since reaching a record high of near $20,000 in December, Steven Russolillo and Andrew Jeong report, a drop that’s intensified in recent weeks following a global regulatory crackdown on the cryptocurrency market.
QUOTE OF THE DAY
Novel technology is not the same as better technology or better economics. That is clearly the case with Bitcoin: while perhaps intended as an alternative payment system with no government involvement, it has become a combination of a bubble, a Ponzi scheme and an environmental disaster. - Agustín Carstens, general manager of the Bank of International Settlements
WHAT ELSE WE’RE READING
The Trump administration has inveighed against the economic costs of trade. What about the health effects? New research suggests that obesity in developing economies is linked to rising imports of food from industrialized trade partners. “As developing countries around the world open up their food markets to industrialized countries, they may be accelerating their ongoing nutrition transition and imposing high future costs on their health systems,” the University of Pittsburgh’s Osea Giuntella, Erasmus University Rotterdam’s Matthias Rieger and Aix-Marseille University’s Lorenzo Rotunno write.
Having good social skills pays in today’s economy. That’s been better news for women than men. A new working paper from the National Bureau of Economic Research shows that while demand for high-skilled workers who perform cognitive tasks increased dramatically between 1980 and 2000, the probability that a college-educated male was employed in one of these jobs fell. College-educated women were more likely to snap up jobs in the high-paying, cognitive occupations. “We find a robust link between the change in an occupation’s female share and the change in the importance of social skills in the occupation. This evidence is consistent with findings in the psychology and neuroscience literatures that indicate that women have a comparative advantage in performing tasks that require social skills,” York University’s Guido Matias Cortes, the University of British Columbia’s Henry E. Siu and the University of Zurich’s Nir Jaimovich write.
UP NEXT
It’s a big day for Federal Reserve speakers on Wednesday. Dallas’s Robert Kaplan, New York’s William Dudley, Chicago’s Charles Evans and San Francisco’s John Williams are all due to speak.
U.S. consumer credit for December is due out at 3 p.m. ET on Wednesday. It’s a volatile, third-tier indicator that tells us little from month to month, though over the longer haul it highlights trends in consumer borrowing.
from Real Time Economics http://ift.tt/2BIioc0
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