This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.
Good morning! Today we look at why Turkey isn’t like other emerging markets, how trade wars are morphing into financial wars, a downward spiral for virtual currencies, America’s love of debt, and whether U.S. workers are finally getting a little bit more productive.
CONTAINMENT
The Turkish lira traded higher for the second straight day Wednesday. But Turkey’s currency crisis has led more broadly to fears of contagion in other emerging markets. What causes a panic? If other countries share the same economic weaknesses, if foreign lenders are badly exposed, or if the same external shock hits several nations at once, Mike Bird writes. Turkey might be unique: the country has high inflation, massive external debts and its increasingly autocratic leadership holds unorthodox economic views. President Recep Tayyip Erdogan appointed his son-in-law as finance minister, curbed central bank independence and faces escalating U.S. trade sanctions.
OUTBREAK
One common theme for emerging markets: the Federal Reserve. As the Fed raises U.S. interest rates and reverses its massive bond-buying program, the dollar is strengthening and borrowing costs are rising for countries with dollar-denominated debt. Lending in dollars to developing economies has boomed since the financial crisis—as of the first quarter, some $2.489 trillion was outstanding. The amount has more than quadrupled in 15 years.
Kicker: Turkey is increasing tariffs on imports of American products, escalating a feud that helped trigger the currency crisis.
Comments or suggestions? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Please include your full name and hometown, or a title and company. Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
U.S. retail sales for July, out at 8:30 a.m. ET, are expected to rise 0.1% from the prior month.
U.S. second-quarter productivity, out at 8:30 a.m. ET, is expected to advance 2.4%.
The New York Fed Empire State survey for August, out at 8:30 a.m. ET, is expected to fall to 20.0 from 22.6 the prior month.
U.S. industrial production for July, out at 9:15 a.m. ET, is expected to rise 0.3% from the prior month.
The National Association of Home Builders housing market index for August, out at 10 a.m. ET, is expected slip to 67 from 68 the prior month.
TOP STORIES
FINANCIAL WARS: ATTACK OF THE TARIFFS
Trade wars may be morphing into something more dangerous: financial wars. The U.S. and other countries are weaponizing international finance in ways that could destabilize the global economy and fray the intricate web of relationships that sustain it. The latest example: President Trump doubled tariffs on imports of its steel and aluminum from Turkey, pouring fuel on the country’s currency crisis, Greg Ip writes.
While trade wars aren’t good for growth, rarely do they induce a recession, or even a noticeable slowdown. By contrast, there’s a long record of international financial disruptions fueling economic stress. Washington’s willingness to stand by or even pile on in a crisis is a new factor to consider for investors deciding whether to flee when another country gets into trouble.
IT’S NOT JUST REAL CURRENCIES
The market for digital currencies is down 70% from its January high, reflecting user frustration over modest inroads into commerce and a general shakeout in speculative investments. Bitcoin, by far the most widely used digital currency, this week fell below $6,000 for the first time since late June, Steven Russolillo, Paul Vigna and Akane Otani report. But the selling has been widespread. Of the top 100 cryptocurrencies by market value, 98 were down over 24 hours. Many users say plunging cryptocurrency prices point to the apparent failure of bitcoin, ether and other popular units to gain widespread adoption in the economy.
CAN I BORROW THAT?
Rising interest rates have yet to dent Americans’ appetite for borrowing. The total stock of new debt climbed to $13.3 trillion in the second quarter, led by rising mortgage, credit-card and auto-loan balances. The total stock of debt has been rising as the economy grows. Debts were 65% of gross domestic product in the second quarter—a figure that’s changed little in recent years and is lower than during the financial crisis. In 2009, when the economy was shrinking and debt burdens had yet to be worked off, the total stock of debt was 87% of GDP, Josh Zumbrun reports.
IT’S GETTING BETTER ALL THE TIME
U.S. workers may be getting more productive. Second-quarter labor productivity is expected to post a solid 2.4% gain. The quarterly numbers are erratic but there are signs worker output per hour is rebounding—a little—after a historically miserable patch through the middle of the decade.
A pickup in U.S. business investment could underpin still-mild productivity gains. That would help the economy grow faster and wages rise quicker without spurring too much inflation.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
TennCare, the Tennessee Medicaid program, disenrolled about 170,000 adults during a three-month span in 2005. “There is no evidence of an increase in employment rates in Tennessee following the disenrollment. Self-reported health and access to medical care worsened as hospitalization rates, doctor visits, and dentist visits all declined while the use of free or public clinics increased,” Thomas DeLeire writes in a National Bureau of Economic Research working paper.
Larry Summers is still banging the secular stagnation drum. The former Treasury Secretary’s outlook isn’t particularly bright for the economy or the Federal Reserve. His latest “analysis depends critically on the assessment that the long term neutral interest rate has declined permanently, a proposition that is consistent with the assessment of financial markets as of writing. More generally the assumption that monetary policy can stabilize the business cycle seems greatly attenuated going forward,” Gauti Eggertsson, Manuel Lancastre and Mr. Summers write in a National Bureau of Economic Research working paper.
UP NEXT: THURSDAY
U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain at historically low levels.
U.S. housing starts for July, out at 8:30 a.m. ET, are expected to rise to an annual rate of 1.27 million.
The Philadelphia Fed manufacturing survey for August, out at 8:30 a.m. ET, is expected to slip to 22.0 from 25.7 the prior month.
from Real Time Economics https://ift.tt/2MNTiue
No comments:
Post a Comment