Date: July 25, 2019
U.S. Business-Equipment Orders Jump by Most Since Early 2018
“Orders placed with U.S. factories for business equipment posted the biggest gain in more than a year and shipments unexpectedly increased, suggesting corporate investment is regaining momentum despite tariffs and global weakness. A proxy for business investment — non-military capital-goods orders excluding aircraft — jumped 1.9% in June after a downwardly revised 0.3% increase in the prior month, according to Commerce Department figures Thursday that topped estimates. A separate Labor Department report showed filings for unemployment benefits fell last week to a three-month low, indicating the job market remains tight. The largest increase in equipment orders since February 2018 was broad-based and could ease concerns that the trade war with China and weakening global growth risk a deeper slowdown in the U.S. economy. Such strength, along with recent data showing firm consumer spending and job gains, may dissuade the Federal Reserve from continuing to cut interest rates after a widely anticipated quarter-point reduction next week. Shipments of business equipment also rose from the prior month, compared with projections for a drop, indicating that second-quarter gross domestic product due Friday may be better than previously expected. Analysts had projected an annualized GDP growth rate of 1.8%, down from 3.1% in the first three months of the year, on slowing business investment and a drag from inventories. U.S. trade negotiators are set to travel to China next week and meet for the first time since talks broke down in May, signaling some progress in reaching a deal between the world’s two largest economies. The broader measure of bookings for all durable goods, or items meant to last at least three years, advanced by more than forecast, reflecting an increase in civilian aircraft and parts orders. Boeing Co. booked nine aircraft orders in June following none in May, amid a global flying ban on its 737 Max jets after two fatal crashes. The company said it may temporarily halt production of the model.”
ECB Signals Rate Cut, QE as Global Stimulus Push Picks Up
“The European Central Bank sent its strongest signal yet that monetary support for the euro-area economy will be stepped up after the summer break, with lower interest rates and renewed asset purchases on the table. President Mario Draghi and fellow policy makers said on Thursday they expect borrowing costs to stay at present levels “or lower” through at least the first half of 2020, opening room for a September reduction in the deposit rate from the record low of minus 0.4%. Officials also signaled they will restart their bond-buying program if needed. Germany’s 10-year bond yield dropped to a record-low minus 0.42% and the euro slid 0.3% to as low as $1.1108. Bank shares rallied as policy makers said they’ll consider measures to offset the squeeze on lenders’ profitability from negative rates. Draghi will explain the decision at 2:30 p.m. in Frankfurt. The ECB is changing tack — just months after officials ended quantitative easing and started preparing to exit extraordinary stimulus — amid a euro-area economic slowdown that has pushed inflation further below its goal, a shrinking manufacturing sector, and with risks such as global trade tensions still prominent. Other central banks are also turning dovish amid slowing global growth with the Federal Reserve expected to cut rates next week. Turkey delivered the biggest interest-rate cut in at least 17 years earlier Thursday. Australia’s central bank chief Philip Lowe said he’s ready to ease policy further if his back-to-back cuts fail to revive economic growth. The Governing Council also added a key line clarifying its “commitment to symmetry” in the inflation goal, or flexibility to be either above or below it. Draghi has stated before that the ECB’s goal is symmetric, but staff only recently started studying introducing a specific aim. That could embolden policy makers to pursue monetary stimulus for longer, and keep price growth elevated for a while after a period of weakness to ensure price growth is entrenched.”
China Trade Minister Steps Out of the Shadows for the First Time in U.S. Talks
“ The differences on substance are vast and the mistrust between the two sides high. Yet one of the biggest questions hanging over U.S.-China trade talks as negotiators prepare for the resumption of face-to-face talks in Shanghai next week is over the new prominence of an old China trade hand. After spending most of the past year in the relative shadows of the talks, Chinese Commerce Minister Zhong Shan has joined two conference calls with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in recent weeks and is expected to be at the table when the two sides start meeting in Shanghai on Tuesday next week. With that Zhong will for the first time be part of the small group of negotiators tasked with charting a path to end more than a year of tit-for-tat tariffs and a trade war blamed for causing a slowdown in the global economy. Zhong was not an unknown quantity for the U.S. with officials including Lighthizer having dealt with him multiple times at international summits over the past two years in his role as China’s trade minister, according to a senior administration official. He is seen as a capable and professional negotiator by the U.S. side, the official said. But why Beijing has chosen to elevate him is unclear, said the official, and there are questions over how he could affect the tone in the talks. Zhong has a reputation as a tough negotiator and is seen by some on the U.S. side as a hard-liner who could make discussions even more hostile than they have been already. Though he hasn’t named Zhong, Larry Kudlow, director of Trump’s National Economic Council, has warned a number of times in recent weeks that the inclusion of new “hard-liners” on the Chinese side could complicate efforts to secure a deal with China, and thus lead Trump to impose more tariffs as he has threatened. Even as some in Washington see him as a hard-liner, Zhong may be better described as a party loyalist practiced in the art of sticking to official rhetoric.”
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