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In today’s issue, U.S. housing data disappoints, Fed Chairman Jerome Powell faces lawmakers, Japanese investors sell U.S. Treasury bonds, global markets end a winning streak, and a top economic adviser from China looks to restart trade talks with Washington.
WILL HOUSING BE A DRAG?
Do we need to start keeping a closer eye on the housing market?
In January, new-home sales fell sharply for the second straight month and sales of previously owned homes posted their steepest annual drop in more than three years. The market has long been constrained by tight inventories and rising prices. Now add to that higher interest rates plus new tax laws that make mortgage financing less appealing, and the sector could be a drag on the economy in the first quarter of the year.
“[W]e think it is very likely that real residential investment will decline in 1Q18,” says J.P. Morgan economist Daniel Silver.
First-quarter GDP estimates have slowly been whittled away, most recently by disappointing home sales. Macroeconomic Advisers had tracked as high as 2.5% but has revised that down to a 1.9% pace.
To be sure, there’s a lot of noise in monthly housing data—including weather effects and wide margins of error—and a couple bad reports are no cause for economy-wide alarm. Today, we get the S&P/Case-Shiller home price index for December. It’s expected to show a robust 6.3% rise for the 20-city index. Pending-home sales for January are out Wednesday. The indication of future activity is expected to show a 0.5% rise from the prior month.
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WHAT TO WATCH TODAY
Germany’s consumer price index for February is due out at 8 a.m. ET. Data from individual states so far point to a slight decline in the annual inflation rate to 1.3% from 1.4%, say economists at Barclays.
Federal Reserve Chairman Jerome Powell’s written testimony to the House Financial Services Committee is released at 8:30 a.m. ET.
U.S. durable goods orders for January at 8:30 a.m. ET are expected to show a 1.6% drop from the prior month. Aircraft orders distort the headline figure. For a better look at underlying activity, focus on nondefense capital goods excluding aircraft.
The S&P/Case-Shiller 20-city home-price index for December is expected to show a 6.3% gain at its 9 a.m. ET release.
Mr. Powell’s live testimony begins at 10 a.m. ET.
U.S. consumer confidence for February at 10 a.m. ET is expected to rise to 127.0 from 125.4, reflecting a broadly upbeat assessment of the economy.
The Richmond Fed manufacturing survey for February is out at 10 a.m. ET.
The eurozone economy remains on track. Data out earlier Tuesday showed eurozone businesses lost a little of their heady optimism, but borrowed at the fastest pace in almost nine years in January, Paul Hannon and Todd Buell report. The European Commission’s Economic Sentiment Indicator fell for the second straight month but remained well above normal levels. Separate European Central Bank numbers showed borrowing by businesses in January posted its largest year-to-year rise since May 2009.
MR. POWELL HEADS TO THE HILL
Jerome Powell heads to Capitol Hill Tuesday morning for his first public appearance as the Federal Reserve’s chairman.
Since Mr. Powell took the helm, Congress approved a large dose of fiscal stimulus and markets have endured a period of volatility. Investors and analysts, meanwhile, have been on edge for any hint the Fed might pick up the pace of interest rate increases amid signs of rising wages and firming inflation.
Watch closely for Mr. Powell’s comments on current market conditions, federal tax cuts and spending increases, inflation, and regulation, Nick Timiraos writes. It also will be interesting to see how he’s received by lawmakers. Republicans often grilled Janet Yellen over their concerns with the Fed’s monetary policy, and Mr. Powell had voted consistently to back her.
JAPAN HAS DOLLAR DOUBTS
Some Japanese investors say they are selling U.S. Treasury bonds and other dollar-based debt.
The reason? Fears have picked up that the Trump administration’s budget and other policies add up to a weak dollar, Kosaku Narioka and Saumya Vaishampayan write.
Japanese holders including the government own nearly $1.1 trillion in Treasury bonds, a close second to China. For years, the U.S. economy has relied on Japan and China to recycle their trade surpluses back into the U.S. by buying American debt.
“A portfolio that’s concentrated on the dollar isn’t sound,” said Masahiro Kawagishi, chief investment officer for fixed income at Nomura Asset Management Co.
RECORD BREAKER
Unless the next couple days are nuts, a record-long bullish streak for global stocks is about to end.
The MSCI All Country World Index, a barometer of stocks around the world, is set for its first monthly decline since before the 2016 U.S. presidential election, Steven Russolillo writes. It is down 2.5% this month, which would be its worst since Jan. 2016, when a steep selloff in Chinese markets dragged global stocks lower.
The index, which captures equity returns from 23 developed and 24 emerging markets, had risen for 15 straight months through January.
WHO IS HE?
The Chinese president’s top economic adviser arrives in Washington this week amid rising trade tensions with the U.S.
Liu He will be named vice premier in charge of China’s financial system and the industrial sector next week. President Xi Jinping’s increasingly influential ally is the Harvard-educated intellectual architect of Xi Economics, Lingling Wei writes.
This week, Mr. He will try to get the Trump administration to restart trade talks with Beijing. The Trump administration slapped new tariffs on imported Chinese solar panels in January. China responded by launching an anti-dumping and antisubsidy investigation into sorghum imports from the U.S.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
More data—big data—is always better, right? Amazon’s chief economist says that’s not necessarily the case. “The accuracy of our forecasting models improves at a decreasing rate as the sample size increases,” Patrick Bajari writes with the Massachusetts Institute of Technology’s Victor Chernozhukov, University of Chicago’s Ali Hortaçsu and Amazon’s Junichi Suzuki. What does help is a longer time series on the data.
There’s been a lot of attention recently on U.S.-China trade. But France’s central bank has published a paper on how trade with China has affected employment in France. The conclusion: “It is estimated that between 2001 and 2007, 90,000 jobs were lost in the manufacturing sector and a further 190,000 jobs were lost in the non‑manufacturing sector as a result of Chinese competition. This represents around 13% of the decline in manufacturing‑sector employment over the same period.” The negative impacts are likely to be long‑lasting in the most affected employment zones.
Tariffs and other temporary trade barriers cause short-run output to fall and inflation to rise but accomplish little else, the Université du Québec à Montréal’s Alessandro Barattieri, HEC Montréal’s Matteo Cacciatore and the University of Washington’s Fabio Ghironi write. “Our main conclusion is that, in all the scenarios we consider, protectionism is not an effective tool for macroeconomic stimulus and/or to promote rebalancing of external accounts.”
UP NEXT
Outside the U.S. look for official and private purchasing managers index figures from China on Wednesday and Thursday.
Eurozone inflation figures for February, due out at 5 a.m. ET on Wednesday, are expected to show consumer prices fell further below the European Central Bank’s’s target of just under 2%.
A revised estimate of fourth-quarter U.S. gross domestic product is out at 8:30 a.m. ET on Wednesday. Economists are forecasting a 2.5% pace of growth, down from the previously reported 2.6%.
The Chicago Purchasing Managers Index for February, at 9:45 a.m. ET, is expected to slip to 64.0 from 65.7.
U.S. pending home sales for January, due out at 10 a.m. ET, are expected to rise 0.5% from the prior month.
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