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Jan 28, 2019

Real Time Economics: The Shutdown Is Over (for Now). Its Consequences May Linger.

The Wall Street Journal.
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Real Time Economics
The partial government shutdown ended Friday, this week is packed and the global economy is still punctuated with question marks. Good morning. Jeff Sparshott here to guide you through the day's economic news. Let us know what you think by replying to this email.

May You Live In Interesting Times

There's plenty for investors and economists to digest this week: The Federal Reserve meets, U.S.-China trade talks pick up in Washington, the U.S. employment report for January is out Friday, and Apple, Amazon.com, Caterpillar and other closely watched firms report earnings.
The abundance of news and data will help fill in some blanks on the economy. But it could also roil markets: The rare confluence of those results with a Fed meeting, monthly jobs report and trade talks could upend the recent stretch of quiet trading, Amrith Ramkumar writes.

What to Watch Today

The European Central Bank's Mario Draghi speaks at European Parliament in Brussels.
The Dallas Fed's manufacturing survey for January is out at 10:30 a.m. ET.

Top Stories

Pay Day!

By the end of the week, hundreds of thousands of federal employees heading back to work should receive pay they missed during the government shutdown. It may take longer for the full array of government programs to get back on track—economic indicators, for example, are likely to run behind schedule. 
Even when the government does catch up, that doesn't mean all the economic damage will be erased. Morgan Stanley revised its first-quarter GDP forecast to 1.7% from 2.5% due to the 35-day disruption. Provided there isn't another shutdown in three weeks, there should be a partial rebound in the second quarter: Morgan Stanley lifted its forecast to 2.1% from 1.8%.

Shutdown 2.0: 'Certainly an Option'

President Trump is doubtful congressional negotiators will strike a budget and border-wall deal he could accept: “I personally think it’s less than 50-50, but you have a lot of very good people on that board.” A group of 17 lawmakers is tasked with hashing out a longer-term deal on border security and, potentially, broader immigration issues, in less than three weeks, Peter Nicholas and Kristina Peterson report. Mr. Trump said he wouldn’t rule out another shutdown, calling it “certainly an option.”

Let's Talk

U.S. and Chinese trade negotiators start a new round of talks on Wednesday. One often-overlooked issue is bound to get a lot of U.S. attention: the role of China’s state-owned companies, Bob Davis writes.
China today has more than 100,000 state-owned firms that employ about 46 million workers. In the U.S. view, such enterprises benefit from subsidies and industrial policies that favor domestic firms, fight increased competition from abroad, and sometimes pressure U.S. firms to hand over technology. The Trump administration insists that Beijing cut tariffs and regulations that benefit state firms and block U.S. competition. It also wants China to reduce subsidies, preferential loans and other help that give state-owned firms an added advantage.

Lower and Slower

A growing number of industrial companies said their sales are softening in China, threatening a strong three-year run for U.S. manufacturers. Makers of everything from bulldozers to computer chips have bet heavily on expanding their business in a country of 1.4 billion. Now that opportunity has become a potential liability for some companies as China’s economy slows to its lowest rate of growth since 1990, Austen Hufford and Patrick McGroarty report.
Head's up: Industrial bellwethers Caterpillar and 3M, which both make about one-tenth of their sales in China, are set to report their latest earnings Monday and Tuesday.

Dude, Where's My Refund?

The first tax-filing season under the 2017 tax law opens Monday, and there’s a crucial unknown for most Americans: Just how big will their refunds be? On average, refunds will be larger than usual. But results will vary, and for individuals, refund size is unusually uncertain. The WSJ's Richard Rubin breaks down what to expect here.  

It's Always the Fed's Fault

Here's the latest disconnect for the Federal Reserve: Some Wall Street investors blame the central bank’s shrinking bond portfolio for recent stock market volatility. But Fed officials say there’s little evidence of turmoil in the two markets where central bank moves should be having their greatest impact, Treasury and mortgage debt, Nick Timiraos reports.

Euro Jitters

Europe's economy is giving people the jitters. Investors are backing away from European assets, as worries over slowing growth and political uncertainty push the European Central Bank to rethink plans to tighten monetary policy this year, Ira Iosebashvili reports.

Quote of the Day

Yes, who wouldn’t? But it’s really not for me to decide, it’s not for me to reflect on. I want to continue to be useful. There are many opportunities. I have a job at the ECB until the end of the year, so it’s really not for me to have that discussion.
European Central Bank board member Benoit Coeure, speaking to Bloomberg Television at Davos on whether he would accept the ECB presidency if it were offered

What Else We're Reading

China is getting more vocal about the West's focus on Huawei. "Beijing’s envoy to the EU has launched a blistering attack on the 'slander' and 'discrimination' faced by Huawei and other Chinese companies in Europe, warning that efforts to exclude China from 5G mobile projects would be self-defeating," the Financial Times reports.
Good-looking economists publish in better academic journals and get more citations. "Our results suggest that physical attractiveness has important benefits even in the absence of face-to-face interactions," Brunel University's Jan Fidrmuc and Chiang Mai University's Boontarika Paphawasit write.

Up Next: Tuesday

The S&P/Case-Shiller home-price index for November is out at 9 a.m. ET.
The Conference Board's consumer confidence index for January is expected to slip to 125.0 from 128.1 the prior month. (10 a.m. ET)
The Federal Reserve starts its two-day policy meeting.

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