Newsletter: Businesses Fear U.S.-China Deal Won’t Get Past Phase One

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Some businesses are worried the U.S. and China won’t be able to reach a long-term trade deal, the latest data confirms the world economy is slowing, Brexit drags on, and Christine Lagarde is about to take over a central bank beset by internal division.

Cheers to Fears

American companies cheered when the U.S. and China called a cease-fire in their trade war. But as both sides work toward drafting an initial deal some worry that a more meaningful, long-term pact may never be reached, William Mauldin reports.

• The White House is hoping to have a “phase one” deal ready by mid-November, when it could potentially be signed by President Trump and China’s President Xi Jinping.
• Issues aimed at leveling the playing field for U.S. businesses would be dealt with in future deals. Thorny topics include U.S. complaints that its businesses are pressured to share or give away crucial technology and restrictions on how they can use data.
• “It would not be surprising if the romance is short-lived and Trump returns to not only more adversarial rhetoric but also more combative actions,” said Libby Cantrill, head of public policy at bond manager Pacific Investment Management Co.

WHAT TO WATCH TODAY

The University of Michigan’s consumer sentiment survey for October is expected to be unchanged from a preliminary reading of 96.0. (10 a.m. ET)

The Baker Hughes rig count is out at 1 p.m. ET.

U.S. federal budget figures for fiscal year 2019 are out at 2 p.m. ET. The Congressional Budget Office is forecasting an annual deficit just shy of $1 trillion.

TOP STORIES

Round and Round

Business activity continued to slow around the world, an indication that a wave of interest-rate cuts by leading central banks has yet to turn sluggish economies around, Amara Omeokwe and Paul Hannon report.

• In the U.S., orders for long-lasting goods fell in September and a measure seen as a proxy for business investment also decreased. A private survey indicated a slight uptick in U.S. business activity in October, though data firm IHS Markit said the overall outlook remained subdued.
• Business activity in the eurozone was close to stagnation in October, while it declined in Japan.
• Around the world, factories have been hit by rising tariffs and slowing investment spending as businesses opt to wait out a period of unusually high uncertainty about future trade relations between the world’s leading economies.

3Q in View

U.S. durable goods orders for September, out yesterday, were one of the last big pieces of the third-quarter GDP puzzle. The outlook? Meh. The Atlanta Fed’s GDPNow model estimates a 1.8% growth rate, Barclays forecasts 1.5%, Macroeconomic Advisers 1.3% and Moody’s Analytics 1.2%. Inventories and trade data next week should help round out the picture ahead of Wednesday’s official GDP release.

Endless Brexit

British Prime Minister Boris Johnson called for a snap general election on Dec. 12 in an effort to pressure his political opponents to back his Brexit deal. To pass, it would need a two-thirds majority and thus require support from the main opposition Labour Party, Max Colchester and Jason Douglas.

The lack of clarity about when and how the U.K. will exit the EU has weighed on economic growth as well as the pound, stocks and banks’ borrowing costs, Anna Isaac and Pat Minczeski report.

• Since the Brexit referendum in 2016, the pound has lost about 13% of its value against the U.S. dollar.
• Borrowing costs for U.K. banks climbed steeply at times when a disorderly exit from the EU seemed most likely.
• By the fourth quarter of 2017, just over a year after the referendum, economic growth in the U.K. had fallen behind that of the lethargic eurozone. 
• The U.K.’s main benchmark stock index, the FTSE 100, has failed to match the bullish rally in U.S. or even European equities.

‘Everyone Is Waiting for Christine’

The European Central Bank stood pat on Thursday. Now the hard part. President Mario Draghi on Nov. 1 hands off to his successor, Christine Lagarde, an institution beset by internal division. Questions swirl about the fate of a new giant bond-buying program Mr. Draghi launched last month. Criticism has grown over his decision to push the ECB’s policy rate further into negative territory and to aggressively push for 2% inflation in the eurozone. As a result, “everyone is waiting for Christine” to understand how she will try to build consensus among the bank’s warring factions, said one ECB official. Meanwhile, the eurozone’s economic backdrop continues to worsen, Tom Fairless reports.

Darkness on the Edge of Town

PG&E Corp. shut off electricity in parts of California again, part of a second wave of intentional blackouts meant to prevent wildfires. Michael Wara of Stanford University’s Woods Institute calculated total economic losses from the first major planned shutdown earlier this month at as much as $2.5 billion. There were no immediate estimates for how much this latest shut-off would cost, but small, independent businesses appeared to be particularly vulnerable to a second economic blow, Jim Carlton, Jaewon Kang and Talal Ansari report.

WHAT ELSE WE’RE READING

When Chinese competition knocked out American manufacturing jobs, young men were hit hardest. The result? “Contractions in the supply of economically secure young adult men stemming from rising trade pressure spur a surge in male idleness and premature mortality, a decline in marriage and fertility, an increase in the fraction of mothers who are unmarried and who are heads of single, non-cohabiting households, and a growth in the fraction of children raised in poverty,” David Autor, David Dorn, and Gordon Hanson write in “American Economic Review: Insights.”

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