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Good morning! Today’s highlights: The Trump administration is sounding confident as it ratchets up pressure on China, though some investors are worried about potential fallout; American consumers may soon feel the pinch of tariffs; and why Europe isn’t ready to break off its love affair with negative interest rates.
I WIN YOU LOSE
Two key points from the WSJ’s Bob Davis and Lingling Wei: 1.) President Donald Trump thinks he has the upper hand in the trade dispute with China. 2.) He is prepared to withstand pressure from U.S. businesses that might suffer from the conflict. Mr. Trump caught Chinese officials off guard with his latest tariff announcement. Next up from the administration is a plan to halt Chinese investment in U.S. technology, due from the Treasury Department by June 30. “It’s clear that China has much more to lose,” said White House senior trade adviser Peter Navarro.
Reminder: China exported $505.5 billion in merchandise to the U.S. last year, compared with $129.9 billion from the U.S. to China.
CONSUMER ALERT
President’s Trump’s trade battles have barely touched U.S. consumers so far. That could soon change. The White House proposal to apply tariffs to an additional $200 billion in Chinese imports—and possibly as much as $400 billion if China retaliates—would certainly hit many consumer products, Josh Zumbrun and Khadeeja Safdar report. The first round of tariffs (the $50 billion finalized last week) will largely hit capital goods, such as industrial machinery, and intermediate goods, like semiconductor components. For the next round, it will be tough to avoid stuff like phones, clothes and TVs. Who pays? Chinese suppliers or U.S. retailers could absorb some of the cost, insulating consumers but hitting their own profits, or they could pass the cost on to consumers in the form of higher prices.
Would you be willing to pay more for cellphones and other electronics to reset trade relations with China? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news.
WHAT TO WATCH TODAY
The Fed’s Jerome Powell, European Central Bank’s Mario Draghi and Bank of Japan’s Haruhiko Kuroda speak at an ECB central banking forum in Sintra, Portugal, at 9:30 a.m. ET.
U.S. existing home sales for May, out at 10 a.m. ET, are expected to climb to an annual pace of 5.54 million.
TOP STORIES
ROLLERCOASTER
Global stocks, commodities and bond yields tumbled Tuesday, the starkest sign yet of investors betting tensions between the U.S. and China could escalate into a trade war. Stocks had slid on trade worries repeatedly this year, only to bounce back as investors wagered the Trump administration’s rhetoric would prove more posturing than actual policy. The scale of the market’s pullback Tuesday exposed the vulnerability of those bets, Akane Otani, Mike Bird and Shen Hong report.
SOMETIMES YOU EAT THE BEAR
U.S. investors aren’t the only ones spooked. China is one of several countries in Asia approaching bear-market territory. China’s benchmark index, the Shanghai Composite, has fallen 19% from its high in January. That puts it on the verge of a new bear market, widely considered to be a drop of at least 20% from a recent high, Steven Russolillo reports.
Investor moods brightened a little Wednesday: The Shanghai index edged up 0.3%, Japan’s Nikkei Stock Average and Hong Kong’s Hang Seng rebounded, while South Korea’s Kospi index rose for the first time in six sessions.
STRONG DOLLAR
The dollar rose to its highest level against a basket of currencies in nearly a year, a sign investors view the U.S. as relatively well positioned as trade disputes unfold.
Fallout: A stronger dollar makes U.S. exports more expensive overseas and foreign imports cheaper at home. China could take things a step further by devaluing its currency to counteract U.S. tariffs.
LESS THAN ZERO
Europe has finally emerged from its debt crisis with healthy economic growth, but it can’t shake one relic of its troubled times: negative interest rates. Negative rates—where depositors pay to keep their money with a central bank—lowered borrowing costs and, in some cases, boosted exports via weaker exchange rates. Denmark, the eurozone, Switzerland, Sweden and finally Japan all tried it out. None seems willing to be the first to lift rates above zero for fear of derailing their recoveries, Brian Blackstone writes. But the longer the banks wait, the greater the risk that damaging side effects—such as squeezing bank profits or fueling housing bubbles—may materialize.
CHART OF THE DAY: HEARTLAND
While U.S. consumers aren’t feeling much pain from U.S. trade disputes, farmers are. Soybean prices fell to the lowest point in two years Tuesday. Prices for grain and livestock also declined as traders bet Chinese tariffs would jeopardize demand for U.S. exports, Benjamin Parkin reports. China is the largest buyer of U.S. soybeans.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
American citizens are afraid to apply for food stamps and healthcare benefits out of fear that a friend or family member will get deported. “Leveraging the roll-out and intensity of Secure Communities under the Obama administration, we find that citizen Hispanic Americans are indeed sensitive to such enforcement although they themselves are not at risk of removal–a spillover effect,” Marcella Alsan and Crystal Yang write in a National Bureau of Economic Research working paper. That has implications for the health and well-being of Hispanics living in the U.S.
Women today live much longer than men. Theories as to why abound: Men lead more dangerous lives, the inherent advantage of a more complete set of chromosomes, etc. But women didn’t have such a big advantage in the 19th century—it only emerged later. “We argue that the reduction in infectious diseases as a major cause of death played an important role,” Claudia Goldin and Adriana Lleras-Muney write in a National Bureau of Economic Research working paper. Infectious diseases in early childhood are linked to chronic diseases in adulthood. Women appear to have benefited disproportionately to men.
UP NEXT: THURSDAY
The Bank of England (7 a.m. ET), Swiss National Bank (3:30 a.m. ET) and Norges Bank (4 a.m. ET) release policy statements.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to land at 220,000, within the historically low range that has marked the series the past few months.
The Philadelphia Fed’s manufacturing survey for June, out at 8:30 a.m. ET, is expected to sink to 28.5 from 34.4 the prior month.
The Minneapolis Fed’s Neel Kashkari speaks at 9 a.m. ET.
The Conference Board’s leading economic index for May, out at 10 a.m. ET, is expected to climb 0.3%.
The Bank of England’s Mark Carney gives annual Mansion House speech in London at 4:15 p.m. ET.
The Federal Reserve releases the first round of its stress tests for the nation’s largest banks.
from Real Time Economics https://ift.tt/2M82CrU
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