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Washington and Beijing are still far apart on trade—and new allegations against China’s telecommunications champion certainly won’t improve the mood as talks begin Wednesday.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. We’ll also look at U.S. and Chinese economic growth, the Fed chairman’s trouble with words and the European Central Bank’s itchy trigger finger. Let us know what you think by replying to this email.
LET’S MAKE A DEAL
The U.S. and China remain sharply divided on trade issues, suggesting a hard slog ahead of a March 1 deadline. The two sides resume talks Wednesday.
The Chinese delegation plans to offer a big increase in purchases of U.S. farm products and energy, along with modest reforms in industrial policies, Bob Davis and Lingling Wei report. But Beijing will fight U.S. demands for deep structural changes. Those demands have included eliminating subsidies to favored industries, as well as regulatory help and other aid to Chinese companies, especially state-owned enterprises.
BACKGROUND MUSIC
The talks will be shadowed by the Trump administration’s criminal charges against China’s Huawei Technologies. In cases unsealed Monday, federal prosecutors accused the telecoms giant of violating U.S. sanctions on Iran and of stealing trade secrets from a U.S. business partner, portraying the company as a serial violator of U.S. laws and global business practices, Kate O’Keeffe, Aruna Viswanatha and Dustin Volz report.
WHAT TO WATCH TODAY
The S&P/Case-Shiller home-price index for November is out at 9 a.m. ET.
The Conference Board’s consumer confidence index for January is expected to slip to 124.0 from 128.1 the prior month. (10 a.m. ET)
The Federal Reserve begins its two-day policy meeting.
TOP STORIES
UNDER PRESSURE
U.S. companies are confirming what we already should have known: China’s economic slowdown is real. Caterpillar, which makes about 10% of its sales in China, said Monday it expects sales of excavators and other construction-related equipment, for example, to be flat this year in the country, a sign of faltering demand in the world’s second-biggest economy. Caterpillar is a booming voice, but there’s a growing chorus of companies saying they are making fewer sales in China. Nvidia Corp. on Monday cited weaker Chinese demand for its computer chips for gaming consoles and other products, Austen Hufford reports.
CASHING OUT
Chinese purchases of U.S. real estate last year dwindled to their lowest level since 2012, as Beijing kept up the pressure on Chinese investors to bring cash home during a period of worsening economic growth. The pullback is the latest sign that China’s slowing growth is reverberating across the globe, roiling financial markets and undercutting corporate earnings, Esther Fung reports.
STRONG FOR THE LONG HAUL
Railroad executives say the U.S. economy remains on solid footing as growing shipments of grain, oil and e-commerce packages offset broader worries over trade policy and volatile stock markets. The chief executives of CSX Corp. and Union Pacific said conversations with their shippers, which represent a broad cross-section of industries, generally show optimism about the coming year, Paul Ziobro and Theo Francis report. “When you talk to the business people, they’ve always indicated that the economy was still in good shape,” CSX CEO Jim Foote said.
PERMANENT DAMAGE
The longest government shutdown in U.S. history reduced economic output by $11 billion over two quarters: $3 billion in the fourth and $8 billion in the first, the Congressional Budget Office estimates. The economy is expected to make up most of that lost ground, but the CBO estimates about $3 billion—or 0.02% of projected annual GDP in 2019—will never be recovered, Kate Davidson reports.
The White House isn’t worried about the big picture: “There’s certainly no permanent damage to the economy,” economic adviser Lawrence Kudlow said Monday.
TEMPORARY INCONVENIENCE
Some U.S. economic reports scheduled for this week and next will be delayed because of the shutdown. The Commerce Department’s fourth-quarter GDP, December personal income and outlays, and a December trade report are postponed. New release dates aren’t yet set, Paul Kiernan reports. Of course, the Big Kahuna of economic reports, the Labor Department’s monthly jobs report, will come on schedule Friday. The reason: Labor was funded through the shutdown, while Commerce wasn’t.
COMMUNICATION BREAKDOWN
Fed Chairman Jerome Powell likes to think of himself as a plain-spoken communicator. Unfortunately, some of his public comments have confused the Fed’s most important audience—the markets that serve as the central bank’s transmission mechanism for monetary policy. Markets shuddered last month after investors took Mr. Powell’s upbeat tone on the economy as an indication the central bank might go too far raising rates, Nick Timiraos writes.
Mr. Powell has faced a delicate balancing act. The U.S. economy has been solid but risks have risen from slowing global growth and trade tensions. He’ll get his next chance behind the microphone Wednesday during a post-policy meeting press conference.
NEVER GONNA GIVE YOU UP
The European Central Bank is open to restarting its recently shelved bond-buying program to support Europe’s softening economy. ECB President Mario Draghi’s comments to European lawmakers underscore a new tone of caution at the central bank, which moved only last month to phase out its landmark stimulus policy. Mr. Draghi warned that recent economic data and surveys for the eurozone have been weaker than expected, and that continuing uncertainties, particularly relating to trade protectionism, are weighing on economic sentiment, Tom Fairless reports.
DANKE SCHOEN, MERCI BEAUCOUP
Switzerland might want to send the U.S. a big box of chocolates. Switzerland’s goods surplus with the U.S. was 25.4 billion francs ($25.6 billion) last year, up more than four billion francs from 2017. At a time of heightened focus in the U.S. on trade deficits, the Swiss mostly fly under the radar; the $25 billion surplus pales compared to German and Chinese imbalances. But it still represents about 4% of Switzerland’s gross domestic product. A few explanations seem likely: the U.S. economy was strong last year, and much of Swiss exports are in high-value goods like pharmaceuticals, chemicals, specialty goods and expensive watches. The dollar also rose in value against the Swiss franc, making Swiss exports to the U.S. a little cheaper –Brian Blackstone
QUOTE OF THE DAY
The scope of these talks will be the broadest and deepest in U.S.-China history. We’ve never had anything this comprehensive. –White House economic adviser Lawrence Kudlow, speaking about U.S.-China trade negotiations
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
Maybe we need an In-N-Out economy. “According to the latest numbers from the Irvine hamburger chain, the average yearly pay of its restaurant managers is now more than $160,000,” Mike McPhate writes in The California Sun. “In-N-Out workers get at least $13 an hour to start, and can eventually rise through the ranks to store manager — no college degree necessary.”
Stop obsessing about budget deficits. “Policymakers will always know when the market is worried about the deficit. But no alarm bells ring when the government fails to rebuild decaying infrastructure, properly fund preschools, or provide access to health care. The results of that kind of neglect show up only later—but the human cost is often far larger,” former Obama advisers and current Harvard professors Jason Furman and Lawrence Summers write in Foreign Affairs.
UP NEXT: WEDNESDAY
Germany’s consumer-price index for January is out at 8 a.m. ET.
The ADP jobs report for January is expected to show a net gain of 183,000, down from the prior month’s 271,000 increase. (8:15 a.m. ET)
U.S. pending home sales for December are expected to rise 0.5% from the prior month. (10 a.m. ET)
The Federal Reserve releases a policy statement at 2 p.m. ET and Chairman Jerome Powell holds a press conference at 2:30 p.m. ET.
The Bank of Japan releases a summary of opinions from its Jan. 22-23 meeting at 6:50 p.m. ET.
China’s purchasing managers indexes for January manufacturing and services are out at 8 p.m. ET.
from Real Time Economics https://on.wsj.com/2FVaQ7M
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