United States:
U.S. Business-Equipment Orders Decline by More Than Expected
Orders with U.S. factories for business equipment declined in April by more than expected in the first drop this year, signaling deepening fallout from the trade war with China even before the latest increase in tariffs. A proxy for business investment — non-military capital goods orders excluding aircraft — dropped 0.9% from the prior month after a downwardly revised 0.3% gain, according to Commerce Department figures Friday. The broader measure of bookings for all durable goods, or items meant to last at least three years, fell 2.1%, slightly below economist estimates, and March was revised lower. The decline in companies’ demand for equipment indicates continued hesitation amid the trade war with China that’s delayed or curbed investment. U.S. firms may also still be putting orders on hold as they work through an overhang of inventory, while President Donald Trump’s ratcheting-up of trade tensions is likely to weigh further on business demand. The data precede Trump’s decision this month to increase tariffs to 25% on some imports from China and his threats of additional levies. The impact may start to be reflected in May figures due next month. The report showed the biggest drop in orders for motor vehicles and parts in almost a year, while demand for primary metals and computers and electronic products also declined. Orders increased for fabricated metal products and machinery as well as electrical equipment, appliances and components. The headline durable-goods figures were dragged down by the volatile transportation category. Bookings for civilian aircraft and parts dropped 25.1%, after separate data showed Boeing Co.’s aircraft orders dwindled in April following the grounding of its 737 Max plane. Yields on 10-year Treasuries remained lower following the report, while U.S. stock futures pared gains slightly. Some figures used to calculate gross domestic product indicated softness: Shipments of non-military capital goods excluding aircraft were unchanged from the prior month — slightly above the Bloomberg survey median for a 0.1% dip — following a downwardly revised 0.6% drop. Even with April’s drop in demand, there was an upswing of momentum based on the three-month annualized gain for business-equipment orders, which picked up to 2.7% from 1.1%. For shipments, the pace slowed to 2.5% from 4%.
Europe:
ECB Policy Maker Sees Economic Upturn Intact Before June Meeting
The euro-area economy remains on track with European Central Bank projections that foresee an upturn later this year, policy maker Bostjan Vasle said. The ECB is gearing up for a meeting in Lithuania in two weeks that will include updates to its forecasts and discussions over how generous to make a new round of bank loans known as TLTROs. Its previous projections in March were followed by sometimes-conflicting economic reports showing troubled manufacturing, relatively resilient services and stubbornly low inflation. “I’m quite confident that the economy is on the right track, that what’s happening is in line with what we’re expecting,” the Slovenian governor said in an interview in his office in Ljubljana. “We have sufficient room to calibrate our monetary policy instruments if the situation were to deteriorate, but at this stage the economy is strong enough.” An account of the ECB’s April meeting on Thursday showed some policy makers losing confidence in the likelihood of a rebound. Incoming data will be key in pricing a new round of longer-term bank loans due in September, with some of Vasle’s colleagues in favor of using that tool to adjust the monetary-policy stance. Others think it should serve primarily as a funding backstop for banks when uncertainty is elevated. The 49-year-old, who does long-distance trail running in his leisure time, was noncommittal on how the loans should be priced, saying “the parameters will be dependent on the economic outlook.” The bank loans are one of several tools the ECB has drawn on in the last decade to support the economy. One of its primary — and most controversial — instruments is the negative deposit rate, effectively a tax on lenders who keep excess deposits at the ECB. Banks have said that hurts profitability, as they can’t pass the cost onto their retail customers easily, and ECB President Mario Draghi has promised to review whether that’s impairing the transmission of monetary stimulus by curtailing lending. Still, Governing Council members have shown a lack of enthusiasm for tweaks such as tiering — exempting some deposits from the charge — and Vasle takes a similar stance. “Negative rates have an overall positive impact on the financial sector and the real economy,” he said. “But obviously there are some side effects which we are aware of.”
Asia:
China Commits to Trade Talks Amid `Groundless’ Huawei Suspicions
Beijing is committed to striking a trade deal with the U.S. but it’s ready to respond with more counter-measures, said China’s Ambassador to the U.S. Cui Tiankai, as he called the U.S. blacklisting of Huawei an “unusual” act of state power against a company. Cui said in an interview with Bloomberg TV Friday that China wants to continue working toward a trade agreement for President Donald Trump and Chinese President Xi Jinping to finalize. There’s no official discussions about a meeting between the two leaders, he said. The U.S. and China should have cooperation and collaboration, Cui said, adding that “trade is about mutual benefits, war is about mutual destruction. How can you put these two very different concepts in one term?” Trade talks between Beijing and Washington stalled this month as Trump accused China of backing out of a deal that the U.S. said was almost completed. In response, Trump hiked the tariff rate on $200 billion in Chinese imports. The U.S. also released a list of about $300 billion in Chinese goods that could face additional tariffs, including clothing, toys and mobile phones. If Trump follows through on that threat, U.S. levies imposed since last year would cover essentially all imports from the Asian nation. There are signs the trade conflict is spilling over into other areas, especially technology. The Trump administration last week placed Huawei Technologies Co. on an export blacklist, choking off China’s biggest technology company from its U.S. suppliers. Cui said the accusations against Huawei are a “groundless suspicion.” He described the action by the U.S. against Huawei as an “unusual” move that mobilizes “state power against a private company.” Asked about Chinese retaliation to the U.S.’s Huawei moves, he said “we will do whatever’s necessary to protect the legitimate interests of our companies, of our people and of our country.” “If things are moving in the wrong direction, then you could see a response very soon,” he said about the timetable for a Huawei response. “But if we could work together to push in the right direction, then things will get better of course.” At the heart of Trump’s crackdown is the suspicion that Chinese firms help Beijing spy on foreign governments. Huawei’s chief financial officer, Meng Wanzhou, was arrested in Canada last year, and the U.S. is seeking her extradition on charges she helped the company defraud banks by concealing business dealings with Iran in violation of U.S. sanctions. She denies the charges.
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