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Good morning! Today we look at shifting focus among investors—from China to Canada and Mexico—as trade worries weigh on markets, peak growth for corporate profits, Nashville’s booming economy, and hundreds of thousands of missing construction workers.
WHAT, ME WORRY?
The U.S. hit China with a new wave of tariffs last week. China retaliated. The next big worry: the North American Free Trade Agreement. Already, investors are concerned about the rise of restrictive trade policies. The feud over Nafta poses a particularly acute manifestation of those fears. And the pact’s future has rarely looked so murky. Major trade negotiations frequently span several years and administrations. The big question is whether President Donald Trump will have the patience to see these trade negotiations through according to those traditional standards. The president is strongly guided by his gut and relationships with others, and also prone to impatience—all of which could signal an intent to leave a treaty he doesn’t like.
NAFTA TUG OF WAR
The Nafta stakes are high: $1.1 trillion in trade between the U.S. and its neighbors and $840 billion of investment ranging from the auto industry to food and agriculture. Mr. Trump won the 2016 presidential election with a promise to make Nafta “a lot better” for the U.S., or pull out altogether. Three key parties could be highly resistant to a unilateral pullout: Canada, Mexico and the U.S. Congress, William Mauldin and Josh Zumbrun write. Republican lawmakers, especially senators from agricultural states that supported Mr. Trump, have sought to convince the president to stay in the pact and warned him of potential political repercussions in the 2018 midterm elections if he leaves the trade agreement and exposes farmers to tariffs on their exports to Canada and Mexico.
Do you think trade tensions are a threat to U.S. economic growth? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.
WHAT TO WATCH TODAY
The National Association of Home Builders housing market index for June, out at 10 a.m. ET, is expected to hold steady at 70.
The Atlanta Fed’s Raphael Bostic speaks on the economic and monetary policy outlook at 1 p.m. ET, and the New York Fed’s John Williams delivers closing remarks at a financial services conference at 3:45 p.m. ET.
The European Central Bank’s Mario Draghi gives opening remarks at the ECB’s central banking forum in Sintra, Portugal at 3 p.m. ET.
President Trump meets with Sens. Shelley Moore Capito (R., W. Va.) and Richard Shelby (R., Ala.) at 3 p.m. ET. The three are sure to talk immigration, funding for a border wall and trade, largely in the context of the budget. There’s a September deadline to avoid a government shutdown.
TOP STORIES
TIT-FOR-TAT
Quick recap: The Trump administration Friday said it would impose 25% tariffs on $50 billion in Chinese products. China announced it would levy penalties at the same rate on U.S. goods of the same value. Trade in goods won’t be the only casualty. American multinationals operating in China are now bracing for further pain, including supply chain disruptions and potential regulatory roadblocks. For example, Qualcomm’s planned $44 billion purchase of Dutch NXP Semiconductors is held up in China. Last month, amid signs of progress in trade talks by Washington and Beijing, Chinese authorities indicated their intention to wrap up regulatory review and clear the transaction. Momentum has since stalled, Lingling Wei and Yoko Kubota report. More broadly, trade concerns have global repercussions, with noticeable effect on currencies from big exporters.
PROFIT MOTIVE
A potential trade war isn’t the only thing weighing on markets. U.S. corporate earnings growth looks poised to slow from a blistering pace, posing a potential new challenge to a long bull market. U.S. corporations grew their earnings 25% in the first quarter, the fastest pace since the second half of 2010, Akane Otani reports. Now, many analysts say that could represent a peak in profit growth. Add in slower global-growth momentum and rising interest rates, and the rosy outlook for stocks could fade.
ARE YOU SURE HANK DONE IT THIS WAY
Nashville’s economy is booming. The region’s population grew 45% from 2000 to 2017, reaching about 1.9 million. The unemployment rate is 2.7%. But now, many are concerned that unbridled development may threaten the Tennessee capital’s charm and impose other costs, Cameron McWhirter writes. The city’s success, for example, means longer commutes and soaring housing prices. Nashville area business leaders are increasingly worried about attracting and retaining workers, in part because of housing costs.
CHART OF THE DAY: BUILDERS
The National Association of Home Builders housing market index is out Monday, U.S. housing starts are out Tuesday and existing-home sales on Wednesday. There’s been a common theme through the data for a while: Demand for homes is strong, supply is short and prices are rising faster than inflation. One reason is the rather slow pace of construction for new, single-family homes. What gives? For starters, there aren’t nearly as many builders. The number of workers in nonresidential construction (industrial and commercial buildings) and heavy and civil engineering has nearly recovered from the recession. But residential building construction is still about 231,000 workers short of its bubble-era peak. Specialty trades (framers, roofers, etc.) are also down significantly.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
The headline on this story says it all: “Pregnancy Discrimination Is Rampant Inside America’s Biggest Companies.” The New York Times details the way some companies treat pregnant workers, an issue that certainly feeds into broader economic trends. “They’re passed over for promotions and raises. They’re fired when they complain.”
Do you find the charts in this newsletter helpful? The Washington Post flags new research showing that a good graphic can be quite convincing. “We find that providing participants with graphical information significantly decreases false and unsupported factual beliefs,” Brendan Nyhan of Dartmouth College and Jason Reifler of the University of Exeter write in the study.
UP NEXT: TUESDAY
The European Central Bank’s Mario Draghi speaks at the ECB’s central banking forum in Sintra, Portugal at 4 a.m. ET.
The St. Louis Fed’s James Bullard speaks on the macroeconomics of prices and wages at the ECB’s central banking forum in Sintra, Portugal at 7 a.m. ET.
U.S. housing starts for May, out at 8:30 a.m. ET, are expected to rise to an annual pace of 1.31 million.
from Real Time Economics https://ift.tt/2MxM1Po
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