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There’s a trade truce, the U.S. expansion is now the longest on record, closely watched factory data is out today, Americans celebrate Independence Day on Thursday and then *boom* we get the June jobs report on Friday. Buckle up and 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.
Cease-Fire
President Trump and President Xi Jinping of China managed to get trade talks back on track this past weekend. Now an even tougher job lies ahead: appeasing hard-line factions within their own governments demanding they give no quarter, Bob Davis and Lingling Wei report.
- Simply relaunching the talks took a lot. In return for getting China back to the bargaining table, Mr. Trump agreed to hold off on new tariffs and let Huawei buy American high-tech equipment. China will buy more U.S. farm goods.
- Mr. Trump faced immediate pushback from China hawks in Congress. And even within the administration, there are deep concerns about taking the heat off Huawei, which U.S. officials said was built on a foundation of stolen Western technology.
- Mr. Xi, meanwhile, faces party leaders and executives of state-owned enterprises who believe Washington is out to demolish the government-led economic model that is responsible for China’s emergence as a global power.
WHAT TO WATCH TODAY
IHS Markit’s U.S. manufacturing index for June is out at 9:45 a.m. ET.
The Institute for Supply Management’s June manufacturing index is expected to fall to 51.3 from 52.1 the prior month. (10 a.m. ET)
U.S. construction spending for May is expected to rise 0.1% from the prior month. (10 a.m. ET)
OPEC and other oil-producing countries led by Russia are gathering Monday and Tuesday in Vienna. They are likely to agree to continue cutting back on oil production in an attempt to drive up prices.
TOP STORIES
How Do You Spell Relief
Stocks, oil and the Chinese yuan rose Monday, boosted by a temporary cease-fire on trade between Beijing and Washington. Traders and analysts called the moves a relief rally, and cautioned that frictions about commerce between the world’s two largest economies were likely to be long-lasting, Shen Hong and Steven Russolillo report.
For the Fed, Outlook Remains Uncertain
Federal Reserve officials won’t find much in the U.S.-China trade truce to boost their outlook for the economy. Presidents Trump and Xi didn’t provide any concrete timetable for resolving the trade conflict, and analysts said the cease-fire could make a deal less likely because it reveals both sides are comfortable with the status quo, Nick Timiraos writes.
- Data dependent: Central bank officials must consider how much trade uncertainty has already weighed on spending and investment decisions, and how continued uncertainty could affect this picture. In focus: a survey of U.S. factory activity due today and the June jobs report out Friday.
- Almost half of Fed officials in June projected rates would be lower by year’s end. But policy makers didn’t cut them at their June meeting, in part to see if trade uncertainties might abate.
World’s Factory Floor
China’s manufacturing sector cooled in June. The Caixin China manufacturing purchasing managers index fell to 49.4, below the critical 50.0 threshold for the first time in four months. Readings above 50.0 signal activity is expanding, below 50 that it is contracting. “Domestic demand shrank notably, foreign demand was still underpinned by front-loading exports, and business confidence fell sharply,” CEBM Group economist Zhengsheng Zhong said.
Will the U.S. follow? The closely watched Institute for Supply Management factory index is out at 10 a.m. ET. The Fed, investors and analysts will be watching to see whether U.S. activity tracks other indexes lower—and possibly into contraction. Economists expect it to fall to 51.3 from 52.1 the prior month. If the forecast is correct, that would be the lowest reading of Mr. Trump’s presidency.
Super Mario
The Fed may be undecided on its next move. But Mario Draghi is teeing up some of the boldest policy moves of his eight-year term as European Central Bank president only four months before he steps down. The late burst of activism is buoying European financial markets, even as it raises legal and practical questions about how much more the ECB can squeeze out of its existing toolbox, Tom Fairless reports. Analysts expect the ECB to cut interest rates, which are already negative, at or before its Sept. 12 meeting. Some also expect Mr. Draghi to announce the relaunch of the bank’s €2.6 trillion ($3 trillion) bond-buying program, known as quantitative easing or QE.
Should I Gray or Should I Go
As more of the population in advanced economies approaches or passes age 60, an increasing share have kept working rather than retire. Labor-force participation for people aged 55 to 64 started climbing around the turn of the century and participation by people age 65 and over began around 2010, Sarah Chaney reports.
- The rise of over-55 year olds in Italy, Japan, the U.S., the U.K., Germany and France since 2001 equates to a combined 18.8 million workers.
- The gray wave has been driven by pension changes, improved health and increased education.
- Rising participation could extend the business expansion by providing employers with more workers as unemployment reaches new lows. It also offsets the drag on growth from aging populations and shores up public finances.
About That Expansion
The U.S. economy is entering its eleventh year of expansion. While that’s a new record, it’s worth remembering that economic growth has been historically slow over the past decade-plus.
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