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In today’s issue, Eurozone growth slows, Apple’s record share buyback rekindles tax cut debate, Trump administration faces numerous deadlines to resolve trade issues, and a finance company leaves New York for Nashville.
WHAT’S THE TROUBLE WITH EUROPE?
The eurozone’s economy grew 0.4% in the first quarter (1.7% annualized), Eurostat reported today, down sharply from 0.7% in the fourth quarter. While expected, the slowdown is still worrisome. The region was a standout last year, beating the U.S. and demonstrating it had put its crises behind it. The precise cause of the deceleration is unclear; it’s more pronounced in France and Germany, less so in Spain. Weather, strikes, the strong euro and protectionism are all possible culprits. On the positive side purchasing managers’ indexes points to still decent factory growth in April. Nonetheless, with Britain and the U.S. also slowing in the first quarter, the global expansion looks a bit fragile.
BUYBACKS VS CAPEX
Apple announced a $100 billion boost to its stock buyback on Tuesday, rekindling debate over whether the tax cut is generating new investment or simply a windfall for shareholders. Apple’s was the largest single buyback announcement on record. J.P. Morgan estimates companies in the S&P 500 will repurchase a record $800 billion of shares this year (up 50% from $530 billion last year). But that’s not necessarily at the expense of investment; most of the buybacks are being paid for from profits earned abroad years ago and can now be repatriated with less of a tax penalty. Apple has said it would repatriate most of the $269 billion it had stashed abroad.
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WHAT TO WATCH TODAY
At 8:15 a.m. ADP releases its estimate of private payroll employment for April. Economists expect a 200,000 increase, in line with the 197,000 boost they anticipate in the official government tally to be released Friday.
The Federal Open Market Committee wraps up a two day meeting with a statement at 2 p.m. It is almost certain to leave its federal funds rate target range at 1.5% to 1.75%. The statement may indicate whether officials are concerned about rising inflation and a potentially overheating economy, though not whether that means more than two further rate increases this year.
TRADE DEADLINES PILE UP
The Trump Administration is running a self-imposed gauntlet of deadlines on trade deals. A trade delegation left for China on Tuesday ahead of a May 21 deadline on new investment restrictions on China and a May 22 deadline for tariffs on $50 billion of imports. Trade representative Robert Lighthizer has set a mid-May deadline to complete negotiations with Mexico and Canada on a new North American Free Trade Agreement, and the European Union has until June 1 before its exemption from steel and aluminum tariffs expires. Companies and investors should expect a volatile month.
GOOD-BYE NEW YORK, HELLO NASHVILLE
Economic disparity has widened in the last decade as high paying industries like finance and technology cluster in coastal enclaves awash with educated workers. But AllianceBernstein Holding LP, a storied money manager, is bucking the trend: it will move from New York City to Nashville, Tenn., Sarah Krouse reports. Nashville’s lower taxes, shorter commutes and a cheaper cost of living ultimately overcame New York’s powerful gravitational pull on finance. The new tax law, though not cited this time, will encourage others to consider following suit. By capping the federal deduction for state and local taxes it makes high-tax cities like New York less competitive. Meanwhile, cities like Cincinnati who lost out on Amazon’s hunt for a second headquarters are addressing the deficiencies highlighted by the exercise, Shayndi Raice and Laura Stevens report.
SUV SALES LEAVE CARS IN DUST
Auto sales slipped in April to an annualized rate of 17.1 million from 17.4 million, a pretty decent level that obscures a serious slump in passenger cars. Ford Motor, whose car sales fell 15% from a year earlier, is shifting investment from cars and sedans to high-margin trucks and SUVs. General Motors has ended production of the Chevrolet Sonic subcompact and may discontinue the Chevrolet Impala sedan. Gasoline prices have not yet risen enough to shift demand back to cars in part because SUV fuel economy has “improved dramatically,” according to Mike Jackson, chief executive of AutoNation Inc., the biggest U.S. dealership chain.
PART TIME? GET USED TO IT
Unemployment at 4.1% is the lowest since 2000 yet the level of part-time workers who can’t find full time work is a percentage point higher. That may be a permanent state of affairs, Mike Derby reports. A study by the Federal Reserve Bank of San Francisco attributes the high level of involuntary part time work to an increasing number of firms treating workers like on-call freelancers rather than employing them as permanent staff.
QUOTE OF THE DAY
“They did it, and they did too much of it.”
Former Federal Reserve Vice-chairman Stanley Fischer on the fiscal stimulus politicians finally delivered.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The conservative Charles Koch Foundation got some say in hiring and evaluating faculty as a result of its donations to George Mason University, the school’s president recently disclosed. Inside Higher Ed notes that donors commonly get to specify the fields and subjects where their grants will be spent, but not to select or judge the researchers. Donor agreements released by the university relate to the university’s Mercatus Center for free-market research, a longtime target of Koch interest which was also home to several officials now serving in the Trump Administration.
The digital footprint you leave when you surf the Internet is more revealing to financial companies than your credit score, according to a new study by Tobias Berg, Valentin Burg, Ana Gombovic, and Manju Puri. “Even the simple, easily accessible variables from the digital footprint proxy for income, character and reputation and are highly valuable for default prediction.” The difference in default rates between Apple and Android users is “equivalent to the difference in default rates between a median FICO score and the 80th percentile.”
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