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Good morning. Today we look at the spark for the latest stock selloff, President Trump’s shot at the Fed, inflation, another emerging-market bailout, and an industrial spying arrest.
FOLLOW THE LEADER
A sharp selloff in U.S. stocks spilled over into Asian and European markets Thursday. Tech stocks were hit the hardest as investors refocused on slowing global growth, rising bond yields and increasing trade tensions.
U.S. stocks have largely been isolated from recent turbulence in emerging markets. That changed Wednesday, with the Dow Jones Industrial Average and the tech-heavy Nasdaq Composite falling sharply, Steven Russolillo and Mike Bird report.
CRAZY TRAIN
The latest rotation out of tech and other growth stocks was sparked in part by the recent jump in government-bond yields and the Federal Reserve’s interest-rate increases. President Trump called out the U.S. central bank: “I think the Fed is making a mistake. They’re so tight. I think Fed has gone crazy.”
Don’t panic? The DJIA’s 3.1% drop wasn’t even the worst this year. U.S. earnings season, meanwhile, starts Friday. Investors are expecting another quarter of strong profits.
Is the Fed nuts? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest news. (Responses may be quoted in this newsletter.)
WHAT TO WATCH TODAY
Keep an eye on markets: Live coverage here.
World Bank and International Monetary Fund annual meetings continue in Indonesia.
The U.S. consumer-price index for September is expected to rise 0.2% from the prior month. The core index, which excludes food and energy, is expected to increase by the same amount. That would put the headline at an annual gain of 2.4% and core at 2.3%.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to remain at historically low levels.
U.S. federal budget figures for September are out at 2 p.m. ET. The last release for the fiscal year is expected to show a widening deficit.
TOP STORIES
WHY EVEN RAISE RATES?
Fed Chairman Jerome Powell just last week said he doesn’t see evidence the labor market is overheating or inflation is getting out of control. But the labor market is tight, wages may be picking up, oil prices are set to climb and inflation clearly has firmed from a couple years ago. A gauge of core business prices climbed 2.9% from a year earlier in September, the highest reading on record for the short-lived series. Core consumer prices, out Thursday, are expected to rise 2.3% from a year earlier, which would match the second-highest reading of the expansion.
Looking ahead, some economists are forecasting a steady pickup: Wells Fargo, for example, says pressure from tariffs, oil prices, and growing firm willingness to pass along increased costs will push headline CPI to 3% by the second half of 2019. It sees the Fed’s preferred inflation gauge, the personal consumption expenditure price index, at 2.7% and core PCE at a tamer 2.3%, both above the central bank’s 2% target. The Fed is forecasting PCE right at 2% for next year.
DECLARATION OF INDEPENDENCE
“Policymakers in a central bank subject to short-term political influence may face pressures to overstimulate the economy to achieve short-term output and employment gains that exceed the economy’s underlying potential. Such gains may be popular at first, but they are not sustainable and soon evaporate, leaving behind only inflation that worsens the economy’s longer-term prospects.” – The Fed
EMERGING CONCERN
Pakistan needs a bailout. International Monetary Fund Managing Director Christine Lagarde said a deal would require “absolute transparency” of the country’s debts, many of which come from China’s landmark Belt and Road Initiative. Her statements indicate Pakistan could be forced to disclose the full extent and terms of Chinese lending it has received in recent years as part of Pakistan’s participation in the initiative. Beijing’s spending binge has emerged as a flashpoint in its tensions with Washington. U.S. officials and lawmakers have said they don’t want taxpayer money, funneled through the IMF, to end up funding a bailout of China, Joshua Zumbrun and Saumya Vaishampayan report.
BUSTED
Another flashpoint in U.S.-China relations: intellectual property theft. An alleged Chinese intelligence operative arrested in Belgium has been brought to the U.S. and charged with conspiring to steal trade secrets from GE Aviation and other companies, marking a rare break for the U.S. in its increasingly aggressive effort to target Chinese industrial spying, Aruna Viswanatha reports.
“This case is not an isolated incident. It is part of an overall economic policy of developing China at American expense,” John Demers, the head of the Justice Department’s national-security division, said in announcing the charges.
QUOTE OF THE DAY
I would not associate Jay Powell with craziness. – International Monetary Fund Managing Director Christine Lagarde, speaking with CNBC
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Fear is a great motivator. Most Europeans get health insurance from their government. “We find that the employment-based health insurance system provides Americans with an extra incentive to work and work full-time,” Zhigang Feng and Kai Zhao write in the Journal of Economic Behavior & Organization. In fact, it’s “one of the reasons why many Americans work more than Europeans.”
Huh, I was always one of the youngest kids in my class. “We find that participants who were among the oldest in the classroom throughout their school years display higher self-confidence in the adult age compared to those who were among the youngest. They are also more willing to enter in some form of competition, declare taking more risk in a range of domains in their life and being more trusting of other people,” Queensland University of Technology’s Lionel Page, Dipanwita Sarkar and Juliana Silva-Goncalves write in a working paper.
UP NEXT: FRIDAY
Eurozone industrial production for August is out at 5 a.m. ET.
U.S. import prices for September, out at 8:30 a.m. ET, are expected to rise 0.3% from the prior month.
The University of Michigan consumer sentiment index for October, out at 10 a.m. ET, is expected to hold roughly steady at 100.0.
The Chicago Fed’s Charles Evans speaks on the economy and monetary policy at 9:30 a.m. ET, and Fed Vice Chairman for Supervision Randal Quarles speaks at the World Bank and IMF annual meetings at 10:30 p.m. ET.
World Bank and International Monetary Fund annual meetings continue in Indonesia.
from Real Time Economics https://ift.tt/2IO6bmX
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