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More red flags on trade wars — Business leaders say President Donald Trump’s trade policies are the biggest threat to an otherwise healthy U.S. economy, our Doug Palmer reports. The latest quarterly survey from the Business Roundtable, which represents 200 CEOs of large companies, shows decreased confidence among executives and less of an appetite for capital spending and increasing employment. “Trade is the scariest area,” said Tom Linebarger, chairman and CEO of Cummins Inc., an Indiana-based engine manufacturer that has operations in China.
Note that if trade really starts to put a damper on business confidence, that’s the kind of thing that might seal the deal on an interest rate cut by the Federal Reserve, though June (i.e. next week) still seems a bit early for that.
Inflation barely moves — Also relevant for the Fed: inflation is still quite mild, rising only 0.1 percent in May, according to the Bureau of Labor Statistics. “This soft inflation backdrop reinforces our call for two cuts to the Fed’s interest rate target later this year,” JPMorgan’s Michael Feroli said in a note to clients. “We think next week is probably too soon to expect that action—given that growth is still holding [on] and trade-related risks remain two-sided—but at the very least the inflation data should lead to a reconsideration of a number of elements in the FOMC’s economic forecasts.”
Still, recall that at Fed Chairman Jerome Powell’s last press conference he attributed lower-than-expected inflation in part to “transitory factors” that would fade over time. We’ll see if that message changes at all next week.
Foreign investment fell in 2018 — Total global foreign investment fell for the third year in a row, thanks to “large-scale repatriations of accumulated foreign earnings by United States multinational enterprises” in the first half of 2018, following tax reform. That’s according to a new report from the UN Conference on Trade and Development. But the news isn’t all rosy for the U.S.: “Inflows in the United States also declined, by 9 per cent to $252 billion.”
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THIS MORNING ON POLITICO PRO FINANCE — Zachary Warmbrodt: FINANCIAL SERVICES APPROVES FLOOD INSURANCE, SHELL COMPANY BILLS— “The House Financial Services Committee on Wednesday approved bills that would reauthorize the National Flood Insurance Program for five years and impose transparency on anonymous shell companies — two of the most significant pieces of legislation on the panel’s agenda this year. The committee advanced the bills with bipartisan support after years of work on each. The panel approved the flood insurance reauthorization bill by Chairwoman Maxine Waters (D-Calif.) in a unanimous vote, following negotiations between the California Democrat and ranking member Patrick McHenry (R-N.C.).”
MORE TRADE FALLOUT— CNBC’s Jeff Cox: “The trade war and global slowdown are combining to trigger a sharp drawdown in profits for U.S. multinational companies. Companies that derive more than half their sales outside the U.S. are expected to see a 9.3 percent slump in second-quarter earnings as the reporting season looms about a month away, according to FactSet estimates that see the S&P 500 broadly reporting a 2.3 percent decline.”
HOW TARIFFS HURT THE POOR — A new paper from the Center for Global Development’s Kimberly Elliott: “The products that still receive relatively high levels of protection are mostly agricultural and food products, leather goods, textiles and apparel and footwear. These are categories that include necessities on which poor Americans spend a larger share of household income than the rich. Even more perversely, tariff rates within the highly protected categories often target relatively less expensive items. Imports of plastic or rubber footwear valued at less than $6.50 per pair face tariffs of around 50 percent while tariffs on leather shoes are generally under 10 percent. … Cotton t-shirts attract a tariff of 16 percent, while importers of cashmere sweaters are taxed at only 4 percent.”
JUST IN: RUBIO PRESSES INDEX PROVIDER ON CHINA STOCKS— Sen. Marco Rubio (R-Fla.) has sent a letter to MSCI, Inc. requesting information regarding their decisions to include Chinese companies like Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. in its indexes. MSCI indexes are referenced by exchange traded products that are listed on U.S. exchanges.
Reaction: “Senator Rubio is standing up for American investors by raising very important questions about the inclusion of some Chinese companies in stock indexes,” American Securities Association CEO Chris Iacovella said in a statement. “It is outrageous that long-term passive investment dollars are being funneled out of the U.S. and into opaque companies that avoid routine financial audits.”
LEFTY MILLENNIALS WANT LOW INTEREST RATES— NYT’s Jeanna Smialek: “As President Trump rails against the Federal Reserve and urges it to lower interest rates, a similar push is coming from a group founded this year by three left-leaning millennials — albeit for very different reasons. Mr. Trump regularly points out that inflation is low and says that the Fed should slash rates, which would weaken the dollar and help with his continuing trade wars. The new group, Employ America, wants central bankers to place a higher priority on fostering job growth and sees looser monetary policy as a way to protect workers as the economy shows early signs of slowing. It is using research, and Twitter, to make its case.”
THE LATEST ON THE 2020 HORSE RACE — Our Nolan McCaskill: “Elizabeth Warren leaped ahead of Bernie Sanders into second place in a pair of Democratic presidential primary polls released Wednesday. Warren has overtaken Sanders nationally, according to a new Economist/YouGov poll, which puts the Massachusetts senator ahead of her Vermont counterpart 16 percent to 12 percent. Former Vice President Joe Biden still leads all contenders with 26 percent support.”
SANDERS VS. DIMON — Bloomberg’s David Scheer and Shawn Donnan: “Sanders lashed out at Jamie Dimon on Twitter after the chief executive officer of JPMorgan Chase & Co. criticized socialism during an appearance in Washington. Dimon, speaking at a Business Roundtable event on Wednesday, said giving the government control of companies allows them to be used for political purposes, leading to deterioration. He said it would be a ‘huge mistake’ for the U.S. to go down that path.
“The Vermont lawmaker, a presidential 2020 contender who calls himself a socialist, shot back. ‘I didn’t hear Jamie Dimon criticizing socialism when Wall Street begged for the largest federal bailout in American history—some $700 billion from the Treasury and even more from the Fed,’ he wrote on Twitter.”
GOLDMAN WOMEN RESIST ARBITRATION — Bloomberg’s Max Abelson: “Women suing Goldman Sachs Group Inc. in one of the era’s biggest Wall Street gender-discrimination lawsuits asked a federal judge this week to stop the bank from forcing more than 1,000 of them into arbitration. Lawyers for the group argue that Goldman has waited too many years to now try to push them out of open court and into the closed-off system of arbitration. They cite their case’s 755 docket entries, 376 discovery requests, 100 letters to the court, 44 motions, 33 days of depositions and 20 expert reports. Goldman said in a separate filing that arbitration is standard on Wall Street.”
BB&T, SUNTRUST UNVEIL NEW NAME — American Banker’s Paul Davis: “The nation’s sixth-largest bank will be known as Truist Financial. BB&T and SunTrust Banks on Wednesday finally unveiled the brand that they plan to use once their $28.2 billion megamerger closes. Officials said they reviewed thousands of possible names in the last several months, but in the end they simply inserted an ‘i’ in the middle of ‘trust’ — a word their earliest names had in common. BB&T is an abbreviation for Branch Banking and Trust, and Trust Co. of Georgia was the oldest predecessor of SunTrust.”
FHFA SEEKS POWER TO OVERHAUL MORTGAGE FINANCE — Our Katy O’Donnell: “The Federal Housing Finance Agency on Wednesday asked Congress for the authority to charter new government-sponsored enterprises to compete with Fannie Mae and Freddie Mac, the first step in a move to overhaul the nation’s housing finance system. The FHFA is seeking to end the market dominance of Fannie and Freddie, the two companies that were rescued by the government during the housing crisis and now guarantee about half the country’s mortgages. The Treasury Department is expected to release a blueprint of its own plan as early as this month.”
FALLING MORTGAGE RATES SPUR APPLICATION FRENZY — WSJ’s Ben Eisen: “Consumers are taking advantage of an unexpected decline in interest rates to buy homes and refinance their mortgages. The volume of mortgage applications surged by 27 percent last week, the biggest weekly rise in more than four years, according to a survey released Wednesday by the Mortgage Bankers Association. Much of the activity was spurred by falling rates, which pushed homeowners to trade higher-interest mortgages for lower-interest ones.”
ICYMI: THE CASE FOR A FINANCIAL TRANSACTION TAX — Brookings’ Aaron Klein: “It’s time for the United States to raise its financial transactions tax (FTT), which would limit the effects of unfair trading, raise revenue, and help reduce income inequality. Many countries have made such taxes work and so could we, though the devil is in the details.”