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U.S. consumer spending and inflation data out today should fill in some blanks on the second-quarter economy, President Trump is talking trade deals in Japan, and European politicians are looking to the 1970s for economic policy inspiration. 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.
‘A Very Big Trade Deal’
President Trump struck a conciliatory tone with other world leaders as the Group of 20 summit got started Friday, saying there would be “very big” trade deals to announce with India and Japan. Mr. Trump didn’t provide specifics as he held meetings with Japanese Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi. But he praised both, assuaging concerns that he would provoke new tensions at G-20 summit, Alex Leary, Valentina Pop and William Mauldin report.
Focus: Mr. Trump is scheduled to meet with Chinese President Xi Jinping on Saturday in an effort to break through an impasse in trade talks.
WHAT TO WATCH TODAY
President Trump is in Osaka, Japan, for the Group of 20 summit.
U.S. consumer spending for May is expected to rise 0.5% from a month earlier. (8:30 a.m. ET)
The U.S. personal-consumption-expenditures price index, excluding food and energy, for May is expected to rise 0.2% from a month earlier and 1.6% from a year earlier. The Fed’s preferred inflation gauge has been running consistently below the central bank’s 2% target and, meanwhile, low expectations are getting baked into consumer behavior. (8:30 a.m. ET)
The Chicago purchasing managers index for June is expected to fall to 52.3 from 54.2 a month earlier. (9:45 a.m. ET)
The University of Michigan consumer sentiment survey for June is expected to register at 97.9, unchanged from a preliminary reading for the same month. (10 a.m. ET)
The Baker-Hughes rig count is out at 1 p.m. ET.
TOP STORIES
Hope for the Best, Plan for the Worst
Some money managers are bracing for a potential resurgence in trade tensions after Presidents Trump and Xi meet this weekend by hedging their bets with currencies and options. Strategies include a short on the Australian dollar and money managers including Russell Investments have pared their exposure to U.S. stocks, Michael Wursthorn reports. The upshot: There is no clear consensus among investors on whether the U.S. and China can reach a deal, and trade-policy uncertainty remains at elevated levels.
Who Needs a Deal Anyway?
The U.S. doesn’t need a trade deal, according to Washington. China doesn’t need one either, says Beijing. Neither claim is really true. A deal may be too much to hope, but a pause in hostilities would make sense for both sides when Presidents Trump and Xi meet Saturday, Nathaniel Taplin writes. The U.S. is weaker than it looks: The U.S. manufacturing purchasing managers index in May gave its lowest reading since Mr. Trump’s election. China’s mixed state-market economy needs discipline from export competition to keep productivity growth healthy.
What both sides really need is a way to avoid too much political damage at home. That means making sure growth doesn’t flag too much—and being able to claim they’ve won.
U.S.-China: Ask the Experts
“It seems likely that Presidents Trump and Xi will agree to another tariff ceasefire on the sidelines of this weekend’s G20 summit in Osaka, Japan. But given the differences between the two sides, we suspect that any truce will prove temporary.” —Jennifer McKeown, Capital Economics
“Even if we get some agreement at the G20 meeting we may underestimate the damage already done to capex planning and corporate sentiment by the trade war because the global supply chain is much more integrated than we think.” —Torsten Sløk, Deutsche Bank Securities
“The ‘best case’ for this G-20 is a similar outcome to the last: new talks coupled with a decision to postpone the new tariff round.” —Chris Krueger, Cowen Washington Research Group
“The Trump administration has signaled for weeks that the president again wants a trade deal with China. While unsound as a negotiating strategy, it does make for a clear prediction. The U.S. will agree to suspend the $300 billion tariff process and talks will restart.” —Derek Scissors, American Enterprise Institute
That 70s Show
Europe’s mainstream parties are going back to the 1970s. To win voters lost to an anti-globalization backlash, parties in Germany, the U.K, Denmark, France and Spain are aiming to reverse decades of pro-market policy and promising greater state control of business and the economy, more welfare benefits, bigger pensions and higher taxes for corporations and the wealthy. Some have discussed nationalizations and expropriations. It could add up to the biggest shift in economic policy on the continent in decades, Bojan Pancevski writes.
The policies mark the end of an era in Europe that started four decades ago, with the ascent of former British Prime Minister Margaret Thatcher and her U.S. ally, President Ronald Reagan.
What Else We’re Following
House Speaker Nancy Pelosi said that the pending U.S.-Mexico-Canada Agreement may need to be changed before the House will vote on the trade pact. Democrats are asking for stricter enforcement provisions and environmental protections, as well as a shorter term on the 10-year exclusivity for costly biologic drugs. The USMCA requires ratification by legislators in all three countries before it can take effect. Mexico approved the agreement last week, and it is expected to pass easily in Canada.
Ford Motor laid out plans to close factories in Europe and cut 12,000 jobs, or more than 20% of its European workforce. Ford’s pullback in the region, the latest retreat by a big U.S. car maker, comes as European regulators are establishing some of the strictest emissions regimes in the world—which combined with high labor costs figures to pressure auto makers’ bottom line.
The European Union is building a free-trade coalition of the willing, one deal at a time. On Sunday, Vietnam will join countries including Canada, Japan, Mexico and Singapore that in recent years signed trade accords with the EU. The five deals together cover trade of goods and services valued at more than €500 billion ($569 billion) annually, equivalent to almost half the yearly value of EU-U.S. commerce.
Q&A: Readers Respond
Yesterday, we followed on a theme from the Democratic debates, where several candidates said the economy isn’t working for everyone. Is it? Here are some responses, sometimes lightly edited and condensed.
“The economy is a great benefit to the wealthy and a problem for everybody else.” —Bernard Gottlieb
“The economy is working as well as it ever has, and for everyone willing to take advantage of it.” —Andrew Wels
“Clearly not as well for some as for others. The ability to move from depressed areas to more thriving areas is a factor. Greater current job skills/education applicable to currently available jobs means success—otherwise, you’re left behind, easy prey for worker’s comp-disability claims, drug abuse, etc.” —R. Seaton Holt
“Time to just admit that jobs, a decent wage, and a growing economy will solve most of the issues.” —Michael Jett
“They should describe in specific detail what ‘working for everyone’ would look like, and how it would actually work within laws of economic gravity.” —Jim Thorpe
WHAT ELSE WE’RE READING
Russia’s Vladimir Putin says there are multiple risks to global stability. One biggie? “He singles out American unilateralism, starting with the tariff war against China and the threat of conflict in the Gulf. ‘To put it bluntly, the situation has definitely become more dramatic and explosive,’ he says” in an interview with the Financial Times.
Maybe the U.S. should go back to the future. “Infrastructure as a percent of GDP began a steady decline around 1970, and the government budget deficit became positive and large at roughly the same time. The infrastructure pattern in other countries does not mirror that in the United States, so the United States appears to be a special case. The overall results suggest that the United States became less future oriented beginning around 1970. This change has persisted,” Yale’s Ray Fair writes in a research paper. (h/t @ProfEmilyOster)
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