Friday, October 12, 2018

Real Time Economics: Global Stocks Rebound | Trump Says Fed is ‘Out of Control’ | Social Security Boost for Seniors

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 global markets, President Trump’s unhappiness with the Fed, bond yields, Social Security payments, and the latest developments in U.S.-China relations.

IS IT OVER?

U.S. stocks tumbled for a second straight day Thursday. But global shares rebounded Friday, calming jittery investors who had been weighing whether this week’s deep selloff was the beginning of a broader downturn or simply a two-day blip, Avantika Chilkoti reports.

Catalysts: China posted better-than-expected growth in exports, the U.S. Treasury Department next week is expected to find that China isn’t manipulating the yuan, and President Trump plans to meet with Chinese leader Xi Jinping next month, raising hopes that a further escalation in trade tensions may be averted.

Next up: Investors are watching major U.S. banks on Friday, with JPMorgan Chase and Citigroup due to post quarterly results amid expectations for a rise in profits.

THE NEW NORMAL

Bond yields are a barometer of where investors think growth and inflation are going—which, for much of the last decade, has been nowhere fast. In that sense, the run-up in long-term interest rates that rattled the stock market this week is good news. With both growth and inflation looking much healthier, the Fed and investors have concluded that interest rates also need to return to more normal levels. If all goes according to plan, the stock market selloff will prove to be a temporary bout of indigestion, Greg Ip writes.

What could go wrong? Growth may abruptly downshift as a tax-cut fueled “sugar high” recedes; tight labor markets and tariffs could push up inflation; or emerging market turmoil could spread. Any of those would threaten an expansion already looking long in the tooth.

Do you think recent market upheaval reflects underlying economic fundamentals? 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

Follow the WSJ’s live market coverage here.

World Bank and International Monetary Fund annual meetings continue in Indonesia. Trade, emerging-market troubles and global growth prospects are high on the agenda.

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.

TOP STORIES

TRUMP’S SOLITARY FED FIGHT

President Trump spent a third straight day Thursday venting his unhappiness with the Federal Reserve’s short-term rate increases, calling them “out of control.” One thing that’s striking is how few other senior administration officials have joined him—at least so far. After Mr. Trump first criticized the Fed this summer, Treasury Secretary Steven Mnuchin said he was “thrilled” with Chairman Jerome Powell and called him a “phenomenal leader.” On Thursday, White House adviser Lawrence Kudlow played down the latest criticism. “The president is not dictating policy to the Fed,” he said on CNBC. Later, Mr. Kudlow added: “And by the way, I think Jay Powell is on target.”

This makes any Trump-Powell tension the inverse of the dynamic that existed between President Reagan and Paul Volcker. While Mr. Reagan’s advisers criticized Fed policy routinely and appointed governors to the Fed board that ultimately outvoted Mr. Volcker, the former Fed chairman said Mr. Reagan was always reluctant to personally criticize him.Nick Timiraos

WHO COULD HAVE SEEN IT COMING?

Higher interest rates shouldn’t be a surprise at the White House. Budget projections released in July included new forecasts reflecting higher inflation and the inevitable response, higher rates. The average annual rate for the three-month Treasury bill was estimated at 2.1% in 2018 and 2.7% in 2019. The average yield on 10-year Treasury notes was forecast at 3% in 2018 and 3.2% in 2019. So far this year, the three-month has averaged almost 1.9% and the 10-year almost 2.9%.

HOUSING CRUNCH

Mortgage rates hit their highest level in more than seven years this week at nearly 5%, a potential blow for an already sluggish housing market. The level isn’t that high by historic standards. During much of the decade before the financial crisis, rates hovered between 5% and 7%. But a return to more normal lending rates won’t feel normal to many buyers who have become accustomed to getting a mortgage loan at 4% or lower, Laura Kusisto and Christina Rexrode report.

INFLATION’S SILVER LINING

After years of pinched budgets, seniors may get some relief in January when monthly Social Security benefits increase by 2.8%. Retirees are benefiting from the higher inflation facing workers, even through retirees’ costs are different, largely because they consume less gasoline and more medical care. The Social Security Administration determines its annual adjustments based on a gauge of prices for urban workers earning an hourly wage, about 29% of the population. Rising gasoline prices in the past year pushed up those costs. The Labor Department also calculates an experimental gauge that aims to track prices for Americans 62-years and older. That index has been rising at slower rate this year than one used to calculate benefit changes. It’s a turnaround from 2015, when inflation for workers was nonexistent but retirees faced increasing costs, largely due to medical bills. – Eric Morath

U.S.-CHINA: OCTOBER CHILL

U.S. officials imposed new restrictions on nuclear exports to China after concluding that Beijing was seeking to illicitly acquire the technology to bolster its military and to undermine U.S. industry. The policy change is the latest bid by the Trump administration to thwart China’s pursuit of critical U.S. technology, Kate O’Keeffe and Timothy Puko report.

U.S.-CHINA: NOVEMBER THAW

The White House decided to move ahead with plans for President Trump to meet with Chinese leader Xi Jinping at a multilateral summit in November to see if the two leaders can find a way out of the mess, according to officials in both nations, Lingling Wei and Bob Davis report. China has been hoping could provide an opportunity for both sides to ease the escalating trade tensions. The meeting is scheduled to take place at the Group of 20 leaders’ summit in Buenos Aires at the end of November.

QUOTE OF THE DAY

We have to bring jobs into America because our best export is entertainment and ideas. But when we make everything in China and not in America, then we’re cheating on our country and we’re putting people in positions to have to do illegal things to end up in a cheapest factory ever: the prison system. – Kanye West, in an Oval Office meeting with President Trump

TWEET OF THE DAY

[wsj-responsive-sandbox id = "0" ]

WHAT ELSE WE’RE READING

Life, liberty and the pursuit of…lower loan rates? “Democracy may not be cheap, but its corporations benefit from lower syndicated loan rates,” according to a paper published by Finland’s central bank. Using a one-to-10 scale index on democratic development, the authors found that a one-point rise cuts 19 basis points off corporate loan spreads. “Reversals from democracy to autocracy hike spreads more strongly.”

Noncompete agreements may be getting out of control. A federal judge in Massachusetts ruled against a janitor who hopped jobs from one property management company to another so she could keep working for the same customer at the same location. “Defendant will be prohibited from providing services at Lonza Biologics, or any other facility where she worked on behalf of C&W during the previous two years, for a period of four months,” District Judge F. Dennis Saylor IV said. The janitor made $18 an hour. (h/t to @John_R_Bauer)



from Real Time Economics https://ift.tt/2EeiQRe

No comments:

Post a Comment