President Donald Trump said there is a very substantial chance his summit with North Korean leader Kim Jong Un planned for next month in Singapore “won’t work out” during an Oval Office meeting with South Korea’s Moon Jae-in. Trump also said yesterday that he is looking into softening penalties on Chinese telecommunications maker ZTE Corp. as a favor to President Xi Jinping. While Trump may be walking back some of his foreign overtures, on the domestic front he’s notched a legislative victory with Congress voting to loosen safeguards designed to prevent a repeat of the financial crisis in the 2010 Dodd-Frank reform.
Global equity markets are under pressure this morning as shareholders reassess geopolitical risks and digest some disappointing data. Overnight, the MSCI Asia Pacific Index declined 0.4 percent while Japan’s Topix index closed 0.7 percent lower as the yen rallied amid haven bids. In Europe, the Stoxx 600 Index was 1.0 percent lower at 5:40 a.m. Eastern Time as the risk-off mood hit the region where shareholders were already cautious because of continued Italian political risks. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 3.017 percent and gold was higher.
Turkey’s lira plunged as much as 5.5 percent, moving above 4.9 to the dollar amid concerns over whether the central bank would step in to support the currency. The rout began in Asia trading when the lira fell below 24 to the yen, sparking a wave of selling as margin traders there cut their losses. With elections due in Turkey next month and President Recep Tayyip Erdogan saying he would take more control of monetary policy should he win, pressure on the embattled currency shows no sign of easing.
Euro-area economic growth seems set to remain sluggish after IHS Markit’s composite Purchasing Managers’ Index for the region fell to an 18-month low of 54.1 in May. The euro briefly traded below $1.1700 this morning, with the British pound also hit after inflation data for the U.K. came in weaker than predictable. PMI data for the U.S. will be published at 9:45 a.m. this morning.
When the minutes of the Federal Reserve meeting from the start of the month are published at 2:00 p.m. recently, analysts will look closely for divisions on the board over whether the bank is willing to let inflation overshoot. The statement released at the time of the decision had a second reference to “symmetric” policy, implying there was a willingness to look through above-target inflation as price rises had run below the 2 percent aim for so long. How shareholders view the minutes will factor into whether they price three or four hikes this year as a whole.
What we’ve been reading
This is what’s caught our eye over the last 24 hours.
- London’s long housing boom is over. Is a bust coming?
- White House bars Democrats from meeting on Russia investigation records.
- Boris Johnson warns May to “get on with it” and deliver Brexit.
- S. sanctions power may be reaching its limit.
- Emerging-market stress has just begun as record debt wall looms.
- The next U.S. recession will start in 2020, survey says.
- SpaceX launches satellites to weigh Earth’s water.
And finally, here’s what Joe’s interested in this morning
Why has wage growth been so mediocre despite historically low unemployment? The answer has felt like an intellectual treasure hunt, with everyone racing to solve the mystery once and for all. Maybe it’s because of globalization. Or technology. Perhaps the answer is in demographics, as well-paid boomers drop out of the workforce to be replaced with millennials lower on the pay scale. Another line of inquiry suggests the concentration of corporate power has reduced labor-bargaining power. On that note, maybe it’s because of the decline of unions. Suffice to say, nobody’s stumbled on the definitive answer yet.
In a new study for the Washington Center for Equitable Growth, Harvard doctoral student Nathan Wilmers writes about the noteworthyrole that a company like Walmart can have on wages of the companies that supply the retail giant. One line from Wilmers’ piece really stood out “…unlike a supplier company’s own managers, outside buyers enjoy social distance from their suppliers’ workers. This allows large buyers to ignore the fairness norms and social pressure that directly employed workers can use to increase their pay.” Why is this so important? When we think about the economy, we often start by thinking about supply and demand curves. Somewhere they intersect and that’s the price of the thing. And on some level, the labor market gets abstracted to a giant, continuous auction where wages are always getting set and reset at some market-clearing level. But the idea of “fairness norms and social pressure” is a reminder that the economy is made of humans, and that there’s more to price than just lines intersecting on a chart. This study doesn’t explain everything, obviously, but social and institutional structures have to be part of the wage-growth conversation.