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We’ll get a big-picture view of the U.S. economy this morning. Watch for a special edition of our newsletter after second-quarter gross domestic product figures are out. 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.
Pressure Drop
The European Central Bank signaled it is preparing to cut short-term interest rates for the first time since 2016 and restart a giant bond-buying program. The policy shift aims to insulate the wobbling eurozone economy from global headwinds ranging from trade tensions to Brexit, Tom Fairless reports.
- The ECB’s clear signal of intent raises the pressure on other major central banks, including the Federal Reserve, to follow suit with interest-rate cuts. The Fed is widely expected to lower interest rates for the first time in over a decade when it meets next week.
- The ECB said it was “determined to act” to prop up inflation rates that have persistently undershot the central bank’s target of just below 2%. It said it was expecting to keep its key interest rate at minus 0.4% or lower through the first half of 2020.
- The economic outlook “is getting worse and worse,” especially in manufacturing, ECB President Mario Draghi said.
WHAT TO WATCH TODAY
U.S. gross domestic product is expected to advance at a seasonally adjusted annual rate of 2.0% in the second quarter. (8:30 a.m. ET)
The Baker Hughes rig count is out at 1 p.m. ET.
TOP STORIES
Overshoot
Some investors are betting the ECB is going to be aggressive at its next policy meeting on Sept. 12. One big hint: For the first time as part of an official policy statement, Mr. Draghi said that the ECB would aim to overshoot its inflation target of “below but close to 2%” to make up for inflation that has run persistently below target. With the central bank showing it is less concerned about stoking inflation, it can be more aggressive with its measures. “Symmetry means there is no 2% cap, inflation can deviate on both sides and we don’t accept permanently lower inflation rates,” Mr. Draghi said.
Now That’s Aggressive
A larger-than-expected interest rate cut in Turkey is stirring concern that President Recep Tayyip Erdogan is whittling away the independence of the country’s central bank in his bid to crank up the economy. Mr. Erdogan sacked the previous central bank governor earlier this month for failing to act on his instructions to loosen monetary policy. His replacement, Murat Uysal, showed no such qualms, cutting the central bank’s benchmark rates to 19.75% from 24%, returning to an expansive policy despite persistent double-digit inflation and selling pressure on the Turkish lira, David Gauthier-Villars and Avantika Chilkoti report.
The Old Apartment
The U.S. homeownership rate fell for a second straight quarter, as high prices and limited starter-home inventory are steering more households toward renting. The second quarter marked the first time the homeownership rate fell on an annual basis since 2016, Will Parker reports. There were 585,000 new homeowners in the quarter, compared with the nearly 600,000 new rental households.
From GDP to Shining GDP
We’ll get a look at second-quarter gross domestic product this morning. First, let’s look at some sharp regional disparities in economic growth through the early part of the year:
- For the first time in two years, all 50 states and Washington, D.C., saw an increase in real GDP in the first quarter of 2019. But the Northeast and mid-Atlantic regions have underperformed for the past four quarters, while the Southwest and Rocky Mountain regions have outpaced the country.
- Mining and oil and gas extraction were leading contributors to growth. West Virginia’s 5.2% growth rate in the first quarter led all states, thanks largely to mining.
—Likhitha Butchireddygari
Factories and Farms
One potentially good sign for the economy: Demand for long-lasting goods produced in U.S. factories rose at the fastest pace in close to a year in June. And an underlying gauge of business investment, new orders for nondefense capital goods excluding aircraft, rose 1.9%, the second straight month of growth, suggesting business investment is holding up despite trade tensions and weakness overseas.
And a reminder of trade tensions that are weighing on the economy: The U.S. Department of Agriculture is preparing to deploy $16 billion in government funds to aid farmers hurt by the trade battle with China and wet weather that kept many from planting a crop this spring. China’s tariffs on $60 billion in U.S. imports have bruised a U.S. farm economy already struggling after years of low crop prices.
WHAT ELSE WE’RE READING
Africa’s cities are about to boom, and maybe explode. “Africa is increasingly urbanized, and its future will be shaped not in sleepy remote spaces but in the dense vibrant clusters of Lagos, Addis Ababa and Kinshasa. Big cities are becoming the engine of the continent, with huge implications for future energy needs, security, governance and public services–as well as rising risks if urban growth is poorly managed,” the Center for Strategic and International Studies’s Judd Devermont writes at Bloomberg Opinion.
The U.K.’s new government has promised a range of free-trade deals once it leaves the European Union. But even the most polite trading partners aren’t in a hurry to help, Janyce McGregor notes at the CBC. ” ‘Yes, the U.K. is an important and large market, but any negotiator sitting down with them would recognize that there’s a different level of desperation with the Brits,’ said Brian Kingston, vice-president of the Business Council of Canada.”
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