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Oct 8, 2018

Republicans believe U.S. economic system is fair to most Americans I The Finance 202 I The Washington Post.


By Tory Newmyer

THE TICKER

Protestors take part in the "Tax March" in New York last year calling on President Trump to release his tax records.  (AFP PHOTO / Kena Betancur)
The country’s growing partisan divide isn’t confined to the shoutfest over Brett M. Kavanaugh’s Supreme Court confirmation: Republicans and Democrats also hold increasingly divergent views about the basic underpinnings of the economy.
For the first time since the question was asked in 2014, a clear majority of Republicans and right-leaning independents — 57 percent — now say the economic system is fair to most Americans, according to a survey released last week by the Pew Research Center. That represents a 7-point swing from just over two years ago, when a majority of the same population said the system favored powerful interests. Meanwhile a rising number of Democrats, 84 percent, say the economy is unfairly skewed toward the powerful. 
The results point to an electorate in which the two major camps perceive fundamentally different realities, and the chasm is only widening. For example, while Republicans have long proved more likely than Democrats to chalk up wealth to hard work, the Pew survey found the partisan gap on that question has doubled in just the past four years:

The phenomenon is evident in a midterm campaign unfolding on a split screen. Republicans are pointing to an economy that’s humming by many measures and in which unemployment just hit a 49-year low. Democrats are highlighting rising health-care costs, stubbornly sticky real wage growth, and the economy’s failure to produce higher-paying jobs. And the party is arguing that the GOP has pushed to make a bad situation worse, in part through tax cuts tilted toward the wealthy. The House Democratic campaign arm made that case in an uncharacteristically pointed ad this month that depicted workers as furniture for corporate executives gloating over their tax-cut windfall:
Ok, I kinda love this @dccc ad. pic.twitter.com/9yDyBMTTrk
— Tim Hogan (@timjhogan) October 3, 2018
Perhaps unsurprisingly, the Pew survey also found that a person’s  income colors how they see others’ wealth: Those making more than $75,000 a year are more inclined than those pulling down less than $30,000 to view wealth as the product of hard work. Conversely, those earning less are more inclined to see poorer people as victims of circumstance.
The sharpening partisan divide may help explain Democrats’ renewed competitiveness in the Rust Belt, where President Trump built his winning margin in 2016 in part by poaching working-class voters from the Democratic column. As Ron Brownstein wrote in the Atlantic last week, Democratic incumbents in four of those states — Sherrod Brown in Ohio, Debbie Stabenow in Michigan, Bob Casey in Pennsylvania and Tammy Baldwin in Wisconsin — now look like solid favorites. And four Democratic gubernatorial candidates in the region are mounting competitive challenges to Republican incumbents. From Brownstein:
The big question for Democrats is how much of this nascent recovery represents genuine disillusion with Trump among white working-class voters in the Rust Belt. It could be, instead, that there’s a lack of enthusiasm for more traditional Republicans among the blue-collar whites who surged to the polls for the president in 2016. Michael Podhorzer, the political director of the AFL-CIO, says the union federation’s research shows some working-class white women have clearly soured on Trump, largely because of his effort to repeal the Affordable Care Act.
But the biggest explanation for the shifting numbers, Podhorzer believes, is that the portions of the white working class hostile to Trump appear somewhat more likely to vote next month than those who support him.
Voters motivated by a sense that the economy remains rigged in favor of the rich got fresh ammunition last week with the New York Times's report detailing Trump’s $413 million inheritance. And the president already looked primed to prove more galvanizing for Democrats than an uneven economic recovery.
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MARKET MOVERS

Traders work on the floor of the New York Stock Exchange on Friday. (Michael Nagle/Bloomberg)
Surging yields threaten stock market tipping point. WSJ’s Michael Wursthorn and Sam Goldfarb: “Yields on long-term U.S. government debt moved abruptly higher last week, calling into question the durability of the more than nine-year-old bull market for stocks. A booming U.S. economy and investors’ desire to put their money in riskier assets, such as stocks and corporate bonds, have sent bond prices tumbling. That in turn has pushed the yield on the benchmark 10-year U.S. Treasury note, the backbone of borrowing costs for consumers, corporations and governments, to 3.23%.
"A strong economy is generally good for stocks. But if yields continue to march higher, investors may start to pull back from riskier assets since they are being better compensated for holding risk-free ones… The dilemma for stock investors is in gauging at what point higher yields will cause a significant reversal.”
Global finance chiefs descend on Bali divided. Bloomberg’s Enda Curran and Rich Miller: “As global finance chiefs prepare to meet this week in the resort of Bali, Indonesia, for the annual International Monetary Fund and World Bank meetings, they do so without the firepower of 2008 and with the era of coordination looking like an anomaly. Today, central banks still have historically low interest rates and are following different paths, while finance ministers are hamstrung by debt. Governments are also pushing nationalist, not globalist, agendas and grappling with headaches such as Brexit, trade wars, surging oil prices and volatile currencies. ‘There are no arrows left in the economic quiver,’ said Danny Blanchflower, a professor at Dartmouth College in New Hampshire who was a policy maker at the Bank of England in 2008.”
Bank earnings loom. WSJ’s Akane Otani and Tristan Wyatt: “The third-quarter earnings season kicks off in earnest Friday, with JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and PNC Financial Services Group Inc. scheduled to post results. Investors hope another quarter of double-digit growth will help stabilize stocks recently buffeted by trade and interest-rate worries. Technology and financial companies have accounted for the biggest share of the S&P 500’s overall earnings growth in recent years. But when it comes to revenue growth, health care and consumer staples have been the biggest contributors.”
Global dealmaking appetite  wilts. CNBC's Ryan Browne: "Companies' appetite for mergers and acquisitions has fallen to a four-year low, with investment pressured by worries over Brexit and the U.S.-China trade battle, according to a study released on Monday. Less than half — 46 percent — of global executives plan to buy other firms in the next 12 months, a 10 percent decline from the previous year, EY said in its biannual 'Global Capital Confidence Barometer' report. The consultancy said that 46 percent of respondents to a survey of more than 2,600 executives across 45 countries also said they saw regulation and geopolitical uncertainty as the biggest risk to dealmaking activity over the next year."

The steep decline in emerging market stocks since early this year are attracting some U.S. fund managers who think they may find long-term bargains amid the sell-off.
Reuters

Jair Bolsonaro, an ex-army captain often compared to President Trump, shocked Brazilians by capturing nearly half the vote in Sunday’s election.
Anthony Faiola and Marina Lopes
TRUMP TRACKER

A family poses for a photo with characters from the Toy Story movies during the grand opening of Toy Story Land at Shanghai Disneyland in Shanghai. Walt Disney Co. stressed its deep China connections as it opened an extension of Shanghai's $5.5 billion Disney Resort earlier this year. (AP Photo)
TRADE FLY-AROUND: 
— Tensions flare on Pompeo visit to Beijing. Bloomberg: "U.S. Secretary of State Michael Pompeo cited 'fundamental disagreement' with China’s foreign minister during a testy exchange in Beijing that highlighted rising tensions between the world’s two largest economies. Pompeo’s retort came after Chinese Foreign Minister Wang Yi accused the U.S. on Monday of escalating trade disputes, interfering on Taiwan and meddling in the country’s domestic affairs. 'These actions have damaged our mutual trust, cast a shadow over China-U.S. relations, and are completely out of line with the interests of our two peoples,”'Wang told his visiting American counterpart.
"The exchange came as Pompeo arrived in the Chinese capital during an Asia trip focused on securing a disarmament deal with North Korea and maintaining international pressure against Kim Jong Un. The visit was the latest indication of deteriorating ties between the U.S. and China, as the two sides tussle over everything from trade to Taiwan and the South China Sea."
(Bloomberg has a rundown of the building tension in the South China Sea here.)
Chinese retaliation could doom big U.S. deals. NYT’s Alexandra Stevenson: “China is looking for new ways to retaliate in the intensifying trade drama — and experts warn that some corporate deals with American buyers could be in jeopardy. A number of global deals involving American companies are under review by Chinese market regulators. Among the biggest is Walt Disney Company’s $71 billion acquisition of 21st Century Fox, which has an Oct. 19 deadline. United Technologies — owner of Pratt & Whitney, the jet engine maker, and other industrial businesses — is waiting to close a $30 billion purchase of Rockwell Collins, the aerospace parts maker.
"China’s antitrust regulators disclose little about their deliberations. But some companies worry that this opacity could provide cover for retaliation in response to tariffs that the United States has placed on Chinese goods — and wonder if long-negotiated deals could become collateral damage in the trade war.”
(We flagged both the Disney and United Technology deals as possible targets of Chinese reprisal here on July 31.)
Trump's China strategy comes into focus. NYT's Neil Irwin writes that the apparent incoherence of the administration's approach to rebalancing U.S. trading relationships is resolving into something that looks like a plan: "The strategy that has jelled goes something like this: The president has been beating up on traditional allies, including Canada, Mexico, the European Union, Japan and South Korea... But fundamentally, that was just about softening them up to extract moderate concessions favorable to American interests... Now that the administration has shown it can get to yes with those deals, similarly patterned agreements with Europe and Japan are expected to come next. After revised deals with those allies are in place, the administration will most likely seek a concerted effort among them to isolate China and compel major changes to Chinese business and trade practices."
But that isn't the story Trump is offering voters weeks ahead of the midterms, as this exchange in a weekend interview with a Memphis outlet revealed:
Asked about Marsha Blackburn's tariff concerns by WREG Memphis, Trump said, "Well, she doesn't have to worry about it anymore. Neither do you. Because, as you know, we made our deal with Mexico and Canada." The deal doesn't touch any existing tariffs, let alone the China tariffs. pic.twitter.com/DlDkZJ5Iba
— Daniel Dale (@ddale8) October 7, 2018
Homeland Security questions report of Chinese hack. Bloomberg's Mike Dorning: "The Department of Homeland Security said it has no reason to question denials by U.S. technology companies of a report that Chinese spies had used a microchip to hack into American computer networks. 'At this time we have no reason to doubt the statements from the companies named in the story,' Tyler Houlton, press secretary for the Department of Homeland Security, said in an emailed statement late Saturday. The companies, including Amazon.com Inc. and Apple Inc., have denied that their systems were compromised."
And Apple's top security officer in a letter to Congress on Sunday said the company had found no evidence of a hack, per Reuters.
Chinese central bank looks to jump-start lending. WSJ’s Chao Deng: “China’s central bank is freeing up nearly $175 billion to get commercial banks to boost their lending and pay off short-term borrowings, the latest effort by Beijing to lift growth in a slowing economy as its trade fight with the U.S. escalates… Chinese leaders are eager to get ahead of any potential economic impact of the trade spat and boost confidence in a flagging stock market, economists say. Stocks in Shanghai have sunk about 15% since the beginning of the year, while the yuan has weakened by more than 9% against the U.S. dollar since mid-April.”
MELTDOWN WATCH: 

Trump is expected to announce the lifting of a federal ban on summer sales of higher-ethanol blends of gasoline on Tuesday in Washington DC ahead of a trip to Iowa the same day, according to two sources familiar with the planning of the event.
Reuters
MONEY ON THE HILL

Sen. Heidi Heitkamp (D-N.D.), a top recipient of campaign contributions from banks.  (AP Photo/Bruce Crummy)
Wall Street donors embrace Democrats. NYT’s Shane Goldmacher: “For the first time in a decade, the broader financial community is on pace to give more money to Democratic congressional candidates and incumbents than their Republican counterparts, according to data from the Center for Responsive Politics… The numbers are stark. Four years ago, in the last congressional midterm, Republican incumbents and candidates outraised Democratic counterparts by more than $50 million in direct donations from the broader finance, insurance and real estate industries… This year, Democrats held a narrow $5 million advantage through the middle of the year. That figure will shift, possibly substantially, when candidates reveal their latest fund-raising hauls later this month.”
The American Bankers Association has given $83,000 to Senate Democratic candidates this cycle, per Reuters, "and is leading the industry’s push to regain bipartisan support, said its CEO Rob Nichols. Nichols, whose association has for the first time bought advertisements for 12 midterm candidates, including four Democrats, called enhancing the industry’s political capability 'strategically important.' 'This is rigorously bipartisan: if you support us, we want to support you,' he said. 'This is not about playing party favorites. For decades, banking policy was bipartisan up until Dodd Frank, and we’re excited to see a return to this bipartisanship.'"
POCKET CHANGE

Paul Romer. (Shawn Thew/ European Press)
Two Americans win Nobel in economics. AP: "Two American researchers have been awarded the Nobel Prize for economics for studying the interplay of climate change and technological innovation with economics. William Nordhaus of Yale University and Paul Romer of New York University were announced winners of the 9-million-kronor ($1.01 million) prize on Monday by the Royal Swedish Academy of Sciences. The academy said Romer’s work 'explains how ideas are different to other goods and require specific conditions to thrive in a market.' Previous macroeconomic research had emphasized technological innovation as a driver of growth but had not modelled how market conditions and economic decisions affected creation of new technologies, the academy said."
Private investment infrastructure booms. WSJ’s Miriam Gottfried: “Private-equity firms are on track to raise a record amount for infrastructure investing in 2018, as money managers bet on the growing need to upgrade and expand the world’s railroads, natural-gas pipelines and data centers. The firms collectively raised $68.2 billion in the first three quarters of the year, up 18% over the same period in 2017…
"The U.S. is the largest market for energy-infrastructure assets, which by and large aren’t owned by the government. The energy industry’s fracking revolution and the country’s shift to being a net exporter of natural gas, as well as the boom in green-energy projects, have created new opportunities for investment… The fundraising spree comes despite a lack of progress on infrastructure legislation in Washington.”
THE REGULATORS

Mick Mulvaney, acting director of the Consumer Financial Protection Bureau. (AP Photo/Jacquelyn Martin)
Navient faces suit from states after CFPB backs off. NYT’s Stacy Cowley: “In the final months of President Obama’s administration, the government’s top consumer regulator was negotiating a large settlement with the student loan collector Navient, which it said had misled borrowers and made mistakes that added billions of dollars to their bills. But after [Trump’s] victory, the talks between the company and the Consumer Financial Protection Bureau broke down… The possibility that the Trump administration will ease up on Navient has prompted more states to join the legal fray. Five have now sued Navient, two of them within the past four months… If Navient loses in court, the company could be required to pay billions of dollars in damages and overhaul the way it handles the accounts of some six million borrowers.”
DAYBOOK
Today