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Tensions are running high between the White House and the Fed, U.S.-China trade talks pick up today, and the number of $100 bills in circulation is skyrocketing. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
NOT-SO-NEUTRAL INTEREST
President Trump is blaming the Federal Reserve for holding back the economy and stock market despite the central bank’s decision to do two things he wanted: halt rate increases and stop shrinking its asset portfolio. In the past week alone, the president blasted the Fed and Chairman Jerome Powell at three meetings with Republican senators, supporters and staffers, Nick Timiraos and Alex Leary report.
The critical drumbeat is complicating Mr. Powell’s job by fueling speculation that the Fed is caving to political pressure, even though Mr. Powell and Fed officials uniformly say this won’t occur. At worst, it could be a prelude to a potentially historic court battle should Mr. Trump ever attempt to remove Mr. Powell.
WHAT TO WATCH TODAY
The ADP employment report for March is expected to show a net gain of 173,000 private-sector jobs. (8:15 a.m. ET)
IHS Markit’s U.S. services index for March is expected to hold steady at 54.8. (9:45 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for March is expected to slip to 58.0 from 59.7 a month earlier. (10 a.m. ET)
The Atlanta Fed’s Raphael Bostic, Kansas City Fed’s Esther George and Richmond Fed’s Thomas Barkin speak on a panel at the American Bankers Association summit at 8:30 a.m. ET. The Minneapolis Fed’s Neel Kashkari speaks at North Dakota State University at 5:00 p.m. ET.
TOP STORIES
LET’S MAKE A DEAL
Chinese Vice Premier Liu He is in Washington, D.C., once again to try to reach a trade deal with the U.S. He will meet on Wednesday with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin for the sixth round of talks since Jan. 1. Don’t expect a deal, which is still some ways off. The two sides will continue discussing enforcement, removal of tariffs and digital trade, among other topics. Negotiators hope to wrap up an agreement by the end of the month, but that remains a hope, not a firm deadline. —Bob Davis
IT’S ALL ABOUT THE BENJAMINS
Here’s a bit of a puzzle: Demand for $100 bills is through the roof. The number of hundreds in circulation outnumbered $1 bills for the first time on record in 2017. The gap widened last year, according to new data from the Fed. Over the past decade, $100 bills in circulation have more than doubled while singles are up by less than one-third.
Why? Torsten Sløk, chief economist at Deutsche Bank Securities, has some theories: “One interpretation is that low and negative interest rates in Europe and Japan and the rest of the world is increasing demand for safe high-denomination cash. Another interpretation is that the underground economy is thriving. The answer is likely a combination of the two.”
It isn’t just the U.S. The mother of all banknotes, the 1,000 Swiss franc note (worth about 10 Benjamins), is popular in Europe.
STAY JUST A LITTLE BIT LONGER
U.K. Prime Minister Theresa May plans to ask the European Union for another Brexit extension. After months of trying to appease euroskeptics in her Conservative Party, Mrs. May is now seeks time to lure opposition lawmakers to support her deal instead. An agreement with the Labour party would likely lead to a softer Brexit than originally planned, Max Colchester and Jason Douglas report.
Brexit is weighing on U.K. businesses and consumers. Data firm IHS Market Wednesday said its purchasing managers index for services fell to 48.9 in March from 51.3 in February, signaling contraction in the economy’s dominant sector.
FACTORY FLOW
Through the first two months of 2019, U.S. durable goods orders were up 4.4% from a year earlier, a better-than-expected result that helped ease worries about a big manufacturing slowdown. And a closely watched proxy for business investment, new orders for nondefense capital goods excluding aircraft, climbed a respectable 2.6% in the same span. But…factories are shipping goods out faster than new orders are coming in. “Although these data seem encouraging, the shortfall between core capital goods orders and shipments over the past few months is frequently a sign that shipments will soften,” Barclays’s Jonathan Millar and Pooja Sriram said. That could weigh on economic growth.
Warning signs: Auto makers posted declines in U.S. sales in the first quarter, and North American freight carriers slammed the brakes on orders for heavy-duty trucks in March.
HOUSING CRISIS
The affordable-housing crisis has gone global. Cities from New York to Stockholm to Sydney face persistent shortages despite millions of dollars invested and hundreds of thousands of units built. Across 32 major cities around the world, real home prices on average grew 24% over the last five years, while average real income grew by only 8%, Laura Kusisto and Peter Grant report.
CRISIS? WHAT CRISIS?
While home prices in some global cities have skyrocketed, in Tokyo they’ve flatlined. So why no affordable-housing crisis in Japan? A big factor, experts say, is the country’s relatively deregulated housing policies. With no rent controls and fewer restrictions on height and density, Tokyo appears to be a city where supply is keeping up with demand, River Davis reports.
In 2017, the number of housing starts in Tokyo was on par with the total tally of new housing units approved in New York, Los Angeles, Boston and Houston combined.
BORDERLINE, FEELS LIKE I’M GOING TO LOSE MY MIND
Congressional Republicans and business associations said they opposed President Trump’s threat to close the southern border, warning of the severe economic damage that could result. Mr. Trump on Tuesday indicated he was still weighing the next steps to stem the flow of Central American migrants.
Mr. Trump: “So we’re going to have a strong border, or we’re going to have a closed border…We’re going to see what happens over the next few days.”
Senate Majority Leader Mitch McConnell: “Closing down the border would have a potentially catastrophic economic impact on our country.”
Texas Association of Business CEO Jeff Moseley: “The closing of the U.S.-Mexico border would be economically devastating to Texas.”
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
One segment of the U.S. population faces an unemployment rate around 25%: military spouses. “Military families report difficulty making ends meet at twice the rate of civilian families, and more than half of the families in the report said the main reason for that difficulty is that the family’s nonmilitary partner had struggled with unemployment or underemployment,” Julie Bogen writes in the Atlantic.
Slaveholders lost a substantial source of their wealth when the Civil War ended. “Yet, the sons of these slaveholders recovered in income and wealth proxies by 1880, in part by shifting into white collar positions and marrying into higher status families. Their pattern of recovery is most consistent with the importance of social networks in facilitating employment opportunities and access to credit,” Philipp Ager, Leah Platt Boustan and Katherine Eriksson write in a National Bureau of Economic Research working paper.
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