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The White House set a March 1 deadline for trade talks with China. Will the sides strike a deal, extend the deadline or ratchet up tariffs?
Good morning. Jeff Sparshott here to take you through the day’s economic news, including a service-sector slide, Fed stress tests, rising auto inventories, oil supplies and the State of the Union. Send us your questions, comments or suggestions by replying to this email.
TICK TOCK
The U.S. is dispatching its chief trade negotiator, Robert Lighthizer, and Treasury Secretary Steven Mnuchin to Beijing early next week to continue trade talks as a March 1 deadline nears. While the two sides have made progress, they are still a long way from a deal.
President Trump last week said he would sit down with with Chinese President Xi Jinping at the end of February to try to finalize a pact. But Mr. Trump hasn’t yet committed to the meeting. A summit between the two presidents would signal that the talks were nearly finished, with both men ready to make the final compromises for a deal, Bob Davis and Vivian Salama report.
HEALTHY OUTLOOK
Agricultural executives are upbeat that the U.S. and China will work things out. “We are expecting the trade dispute [with] China to resolve during the year,” Archer Daniels Midland Chief Executive Juan Luciano said Tuesday. Cargill CEO David MacLennan last month told the WSJ he was “choosing to believe we’ll have a deal” with China. Tariffs implemented by China, which buys nearly 60% of U.S. soybean exports and is a major market for pork and other products, have taken a toll on agriculture, and farmers’ livelihoods, Jacob Bunge reports.
WHAT TO WATCH TODAY
The U.S. trade deficit for November is expected to narrow to $54.3 billion from $55.49 billion the prior month (8:30 a.m. ET)
U.S. productivity data for the fourth quarter will be truncated because of the government shutdown. (8:30 a.m. ET)
Fed Vice Chairman Randal Quarles speaks at a stress-testing conference at 6:05 p.m. ET, and Chairman Jerome Powell participates in a “teacher town hall” at 7 p.m. ET.
President Trump formally announces his candidate for World Bank president at 1:30 p.m. ET. The White House is shoring up support for David Malpass to lead the institution, hoping to head off potential challengers as the nominating process gets under way.
TOP STORIES
NOT TOO SHABBY
Concerns about the government shutdown and a drop in new orders crimped the U.S. services sector’s pace of expansion in January. The Institute for Supply Management’s non-manufacturing purchasing managers index fell to 56.7 in January from 58.0 in December, Harriet Torry reports. Readings above 50 indicate expansion. “Everything seems to be in place for continued growth, unless there’s something catastrophic or another shutdown gets implemented,” said Anthony Nieves, head of the ISM survey.
SHABBY
While the U.S. service sector slowed, it’s still going strong. Europe’s is not. IHS Markit’s services gauge for the eurozone held at a 49-month low in January. France posted its fastest decline in almost five years, Italy shows no sign of emerging from recession and outside the currency bloc, the U.K. posted its weakest service-sector growth in two-and-a-half years.
What gives? Brexit, “yellow vest” protests in France, Italy’s clashes with the EU and trade tensions. “Political uncertainty, both global and local, is increasingly taking a toll on growth, dampening demand and driving increased risk aversion,” said Chris Williamson, IHS Markit’s chief business economist.
STRESSED OUT
Imagine unemployment rising to 10%? That’s part of the Federal Reserve’s stress test, which seeks to ensure big banks can survive a hypothetical downturn with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders, Andrew Ackerman and Lalita Clozel report.
BUYER’S MARKET
Car dealers are beginning 2019 with a heavier inventory of unsold vehicles on their lots. That could pressure factories to cut output if U.S. auto sales cool. There were 3.95 million vehicles on dealership lots at the end of January, a 4% increase from December and up nearly 3% from the prior year, Adrienne Roberts reports. Industry forecasters and some auto executives predict sales this year will fall below 17 million vehicles for the first time since 2014.
SAUDI-RUSSIA OIL ALLIANCE
Saudi Arabia and its Persian Gulf allies are backing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market, Benoit Faucon and Summer Said report. The ability of such an alliance to put a floor on oil prices would run counter to President Trump’s goal of lowering gasoline prices for U.S. consumers ahead of presidential elections next year. But it could ultimately benefit a booming U.S. oil industry and increase the nation’s energy independence.
STATE OF THE UNION, STATE OF THE ECONOMY
President Trump delivered his State of the Union address Tuesday night. Here are some key economic themes:
Mr. Trump said only three things stand in the way of the “economic miracle” taking place in the U.S.: foolish wars, politics and ridiculous partisan investigations. Notably absent from the list was the Federal Reserve. That is a stark difference from October, when Mr. Trump told the WSJ the central bank’s interest-rate increases under Mr. Powell represented the biggest threat to economic growth.
Democrats gave the president a hand and joined chants of “U.S.A.” when he noted gains in women’s employment. “No one has benefited more from our thriving economy than women, who have filled 58% of the new jobs created in the last year,” Mr. Trump said.
On trade, the president softened his tone, speaking about a possible deal with China and asking Congress to pass his rewrite of the North American Free Trade Agreement.
QUOTE OF THE DAY
America was founded on liberty and independence and not government coercion, domination and control. We are born free and we will stay free. Tonight, we renew our resolve that America will never be a socialist country. —President Trump, in his State of the Union address
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING: SOCIAL MEDIA EDITION
Delete your account. “[W]e show that Facebook deactivation (i) reduced online activity, including other social media, while increasing offline activities such as watching TV alone and socializing with family and friends; (ii) reduced both factual news knowledge and political polarization; (iii) increased subjective well-being; and (iv) caused a large persistent reduction in Facebook use after the experiment,” Hunt Allcott, Luca Braghieri, Sarah Eichmeyer and Matthew Gentzkow write in a National Bureau of Economic Research working paper.
Facebook gets lots of attention for spreading fake news. Twitter may be worse. “User interactions with false content rose steadily on both Facebook and Twitter through the end of 2016. Since then, however, interactions with false content have fallen sharply on Facebook while continuing to rise on Twitter, with the ratio of Facebook engagements to Twitter shares decreasing by 60 percent,” Hunt Allcott, Matthew Gentzkow and Chuan Yu write in a National Bureau of Economic Research working paper.
UP NEXT: THURSDAY
The Bank of England releases a policy statement at 7 a.m. ET.
U.S. jobless claims are expected to fall to 225,000 from 253,000 a week earlier. (8:30 a.m. ET)
U.S. consumer credit is out at 3 p.m. ET.
The Dallas Fed’s Robert Kaplan participates in a moderated Q&A at 9:15 a.m. ET, Fed Vice Chairman Richard Clarida speaks at a Czech National Bank seminar at 9:30 a.m. ET, and the St. Louis Fed’s James Bullard speaks abot the economy and monetary policy at 7:30 p.m. ET.
from Real Time Economics https://on.wsj.com/2WLM6Ek
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