October 24, 2019
U.S. Business-Equipment Orders Drop Second Month, Miss Forecast
“Orders placed with U.S. factories for business equipment declined for a second straight month and shipments matched the biggest drop since 2016, the latest sign the dimmer global growth outlook and trade tensions with China are weighing on companies.The proxy for business investment — bookings for non-military capital goods orders excluding aircraft — fell 0.5% in September after a downwardly revised 0.6% drop the prior month, according to Commerce Department figures Thursday that missed estimates. The broader measure of bookings for all durable goods, or items meant to last at least three years, declined 1.1%, the most since May and also below forecasts in Bloomberg’s survey. A separate report Thursday from the Labor Department showed initial unemployment claims fell slightly to 212,000 in the week ended Oct. 19, indicating the labor market remains generally tight. Overall, the level remains close to a half-century low as fewer people seek jobless benefits. The sustained weakness in orders adds to signs of malaise in business investment and potentially bolsters the case for a third straight Federal Reserve interest-rate cut, a move that traders expect from policy makers next week. Separate reports due later Thursday will give the latest reads on factories and new home sales, while data next week are forecast to show slower economic growth and payroll gains. “There’s a lot of uncertainty hanging over manufacturing and softness in the global economy,” said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. Even so, “this expansion can go on without a large contribution from manufacturing” given that it’s a relatively small part of the economy, Sweet said. Cracks in manufacturing have been visible in other recent reports. One in six companies in the Philadelphia region plans to reduce capital spending next year because of President Donald Trump’s trade policies, a Fed survey showed.”
Draghi Keeps ECB Stimulus in Last Act as Economy Stains Legacy
“The European Central Bank kept monetary stimulus unchanged in the final meeting of Mario Draghi’s presidency, an eight-year period in which he prevented a euro-zone breakup but was unable to meet his inflation goal. The Frankfurt institution confirmed its latest package of record-low interest rates and a resumption of quantitative easing, a program unveiled last month amid unprecedented opposition from some officials. Much of the implementation will now be up to Draghi’s successor, Christine Lagarde, who attended Thursday’s Governing Council as an observer. The president will hold his final press conference at 2:30 p.m. in Frankfurt, an opportunity to defend his legacy and repeat his warning to governments that they must urgently act to strengthen the euro zone. He has repeatedly called for fiscal stimulus and economic reforms, to little avail. Unlike his predecessors, Draghi was never able to raise rates during his term, instead pumping ever-more liquidity into the financial system as he fought one crisis after another. He’ll be remembered for his pledge to do “whatever it takes” to save the euro during the regional debt meltdown in 2012, and he claims credit for the creation of 11 million jobs since 2013, but he’s fallen short of his primary mandate. Inflation was 0.8% in September, the lowest in almost three years. The goal is a rate just under 2%. Officials argue that the euro-zone economy is increasingly resilient but has been undermined by international trade tensions such as U.S. protectionism and Brexit. Global growth is cooling and investors expect the U.S. Federal Reserve to agree on a third straight rate cut next week. The central banks of Norway and Sweden kept rates on hold on Thursday — though Sweden’s Riksbank signaled it hopes to raise its policy rate to zero by the end of the year. Draghi’s ultra-loose strategy will likely extend well into Lagarde’s term after she starts on Nov. 1. The deposit rate is at a record-low minus 0.5%, with a pledge to cut again if needed, and won’t rise until inflation “robustly” converges with the goal. QE will start next month with asset purchases of 20 billion euros ($22 billion) a month, and won’t end until “shortly” before the first rate hike. Data on Thursday confirmed the outlook remains gloomy, with a purchasing managers index signaling the private sector is barely expanding and expectations the worst since 2013. Germany, the largest economy, remains in a slump. ECB officials expect a downgrade to their economic forecasts in December.”
China Willing to Buy $20 Billion of U.S. Farm Goods in Year One
“China aims to buy at least $20 billion of agricultural products in a year if it signs a partial trade deal with the U.S., and would consider boosting purchases further in future rounds of talks, people familiar with the matter said. The $20 billion would take its imports of U.S. farm goods back to around the level in 2017, before the U.S. began imposing tariffs. In the second year of a potential final deal when all punitive tariffs are removed, those purchases could rise to $40-$50 billion, said the people, who asked not to be named discussing the private talks. The people did not say when the first year would start or when China would start counting agricultural imports toward the $20 billion. The two nations are currently working on the details of a limited agreement, after talks in Washington earlier this month at which the U.S. agreed not to hike tariffs in October, and said China agreed to increase purchases and other concessions. If the negotiations go well, Trump and President Xi Jinping may meet in Chile next month to sign the deal. Commerce Secretary Wilbur Ross said any agreement on structural issues will come in two additional phases.”
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