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Dec 12, 2018

Real Time Economics: Will Recession Worries be Self-Fulfilling?

The Wall Street Journal.
Percentage logo.
Real Time Economics
British Prime Minister Theresa May faces a no-confidence vote, business executives worry about a recession, U.S.-China trade talks inch ahead, the ECB heads for a milestone and the U.S. gets a key inflation reading ahead of next week's Fed meeting.
Good morning. Jeff Sparshott here to take you through key developments in the global economy. Buckle up, it's another busy day for economic news.
 

Self-Fulfilling Prophesy

As John Maynard Keynes long ago noted, businesses are often driven by animal spirits, not hard cold analysis. So when a survey by Duke University finds almost half of U.S. chief financial officers believe a recession will strike the U.S. economy by the end of 2019, it's worth wondering whether they will act on that belief, for example by curbing investment and hiring, and thus make such an outcome more likely. The yield curve is approaching inversion (when long-term rates drop below short term rates), another reliable recession predictor. Interestingly, this too may be due to psychology: a survey by the Federal Reserve in October found most bank loan officers would see a prolonged inversion as a reason to tighten lending.—Greg Ip

What to Watch Today

The U.S. consumer-price index  for November, out at 8:30 a.m. ET, is expected be unchanged from a month earlier. Core prices, which exclude food and energy, are expected to tick up 0.2%. That would put headline and core prices up 2.2% from a year earlier. CPI isn't the Fed's favorite inflation index, but it's an important barometer of price pressure ahead of the central bank's Dec. 18-19 policy meeting. 
U.S. federal budget figures for November are out at 2 p.m. ET. The Congressional Budget Office estimates a $203 billion deficit for the month, up $64 billion from a year earlier.
British Prime Minister Theresa May is set to face a no-confidence vote Wednesday after members of her own party rebelled against her Brexit plan.

Top Stories

Easing Tensions

Beijing's top trade negotiator told U.S. officials China was planning to reduce auto tariffs and boost purchases of soybeans and other crops. But it is unclear if the early pledges will pave the way for a deal by the March 1 deadline, Bob Davis and Lingling Wei report.
Under pressure: The talks come amid rising U.S. demands, including calls for China to protect U.S. intellectual property and to stop pressuring U.S. firms to hand over valuable technology. Beijing has never acknowledged applying such pressure. Washington is readying measures against China, including criminal charges against hackers, export controls, indictments and other tools. 

For a Few Dollars More

A Canadian judge granted bail to Huawei Technologies CFO. The judge’s decision Tuesday frees Meng Wanzhou after more than a week in detention, though it requires her to submit to a curfew, electronic monitoring and a limited range of travel in the Vancouver area. Bail was set at 10 million Canadian dollars ($7.5 million). She now awaits possible extradition to the U.S., where she could face multiple criminal charges that each carry up to 30 years in prison, Jay Greene reports.

Pawn Stars

President Trump told Reuters he could intervene on behalf of Huawei's CFO if it bolstered national security or helped secure a trade deal with China. His reach for leverage with U.S. criminal and civil investigations involving Chinese nationals and companies such as ZTE and Huawei is a very Chinese way of doing things: Beijing has long viewed the legal system as a tool to be used for political or mercantile ends—and ignored when necessary. That should be worrying for investors. Assuming a long period of economic and strategic competition, U.S. executives in China could increasingly find themselves used as pawns in trade or even security tussles, Nathaniel Taplin writes.
Case studyChinese state-security officials on Monday detained a former Canadian diplomat. Michael Kovrig is now a senior adviser with Brussels-based nonprofit International Crisis Group.

Hold the Champagne

The European Central Bank is nearing a landmark decision to wind down its $3 trillion bond-buying program. But it comes at an awkward time for Europe, whose economy slowed last quarter to its weakest level in four years. ECB officials are expected to confirm plans to end new bond buying, known as quantitative easing, at their meeting Thursday. The ECB will thus become the third leading central bank to wind down QE, after the Federal Reserve and Bank of England. The bank’s program was originally designed to last 18 months and total around €1 trillion. It has ended up lasting almost four years and costing €2.6 trillion ($2.96 billion), Tom Fairless and Brian Blackstone write.
“I think QE for the ECB has been economically a success and politically almost a disaster,” said Stefan Gerlach, chief economist at EFG Bank.

The Loneliest Generation

Baby boomers are aging alone more than any generation in U.S. history. The resulting loneliness is a public health threat.
About one in 11 Americans age 50 and older lacks a spouse, partner or living child, Janet Adamy and Paul Overberg report. That's about eight million people in the U.S. without close kin, the main source of companionship in old age. Policy makers are concerned this will strain the federal budget and undermine baby boomers’ health. Researchers have found that loneliness takes a physical toll, and is as closely linked to early mortality as smoking up to 15 cigarettes a day.

Up Next: Thursday

The European Central Bank releases a policy statement at 7:45 a.m. ET.
U.S. jobless claims, out at 8:30 a.m. ET, are expected to slide to 225,000 from 231,000 a week earlier.
U.S. import prices for November, out at 8:30 a.m. ET, are expected to fall 1.1% from the prior month.
European Union leaders meet Thursday and Friday to discuss Brexit, budget, migration and other issues.
China retail sales, industrial production and investment figures for November are out at 9 p.m. ET.