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Our daily Real Time Economics email will continue uninterrupted. And now the news…

Boom!

The S&P 500 set a record for the first time in three months to kick off a busy week that features a flurry of corporate earnings, a Federal Reserve meeting and the October jobs report, Karen Langley and Avantika Chilkoti report.

  • Catalyst: A better-than-feared corporate earnings season.
  • Catalyst: The U.S. and China appear to be edging closer to completing “phase one” of a trade deal. President Trump Monday said the sides are “a little bit ahead of schedule, maybe a lot ahead of schedule.” Mr. Trump and President Xi Jinping meet face-to-face next month at an Asia-Pacific Economic Cooperation summit.
  • Catalyst: The Fed is expected to cut interest rates on Wednesday for the third time this year.
  • “I think the market had been pricing in that we were on the footsteps of a recession, and I think that’s changed,” said Michael Mullaney, director of global markets research at Boston Partners.

WHAT TO WATCH TODAY

The S&P/Case-Shiller home-price index for August is out at 9 a.m. ET.

The Conference Board’s consumer confidence index for October is expected to rise to 128 from 125.1 a month earlier. (10 a.m. ET)

U.S. pending-home sales for September are expected to rise 0.7% from the prior month. (10 a.m. ET)

The Federal Reserve begins its two-day policy meeting.

Japan’s retail sales figures for September are out at 7:50 p.m. ET.

TOP STORIES

Man on Wire

Federal Reserve Chairman Jerome Powell will walk a tightrope this week. Markets largely expect another quarter-percentage-point rate cut Wednesday. It is the Fed’s next step that is uncertain, and investors will closely watch for clues in the central bank’s policy statement and Mr. Powell’s press conference, Nick Timiraos reports.

  • If the Fed cuts, officials will have reduced their short-term benchmark at each of their last three meetings to help guard against an economic slowdown.
  • Mr. Powell’s task will be to craft a message that neither presumes a cut is likely at the Fed’s next meeting in December nor declares an outright end to rate cuts—without provoking a market backlash that unwinds the benefits from moves to reduce borrowing costs for households and businesses.

 

One area where the Fed’s lower rates have had an impact: the mortgage market. Lenders extended $700 billion of home loans in the July-to-September quarter, the most in 14 years. Mortgage originations for the full year are on pace to hit their highest level since 2006, the peak of the last housing boom.

Heard on the Street’s Justin Lahart says we shouldn’t expect consumers or businesses to light the economy on fire even if the Fed does cut. Why? Lower rates have an outsize effect on housing, but housing represents a smaller share of the economy than it used to. Rate cuts can affect consumer spending by pushing up the value of assets such as stocks and homes, but wealth effects appear less powerful than they used to be, perhaps because stock-market and housing wealth have become more concentrated in the hands of the well-to-do. And companies don’t appear to be responding to low rates as forcefully as might be expected. In other words, the risk is that the Fed’s policy simply isn’t as potent as it once was.

Soft Demand

The U.S. trade deficit in goods narrowed in September. That might help short-term economic data but underlying trends suggest falling demand at home and abroad amid rising tariffs and a slowing global economy. U.S. goods exports peaked in May 2018 and have since fallen 5.5%. Imports hit a record in October 2018 and are since down 4.8%.

Last piece of the puzzle: The Commerce Department released September inventory data alongside trade numbers on Monday. Those provided the last big ledger entries for gross domestic product estimates ahead of the official release on Wednesday. Where does that leave forecasts? The Atlanta Fed’s GDPNow model is tracking a 1.7% growth rate, Moody’s Analytics is at 1.4% and the WSJ consensus is 1.6%, a marked slowdown from most of 2017 and 2018. 

Ready or Not

Europe is hiring. Its workforce isn’t ready. Across the continent, job training hasn’t kept pace with demand for skilled workers such as software engineers and digital-savvy technicians. European schools that once excelled in vocational training haven’t kept up with technological changes because of spending cuts made during the economic crisis a decade ago. Exacerbating the shortage, not enough students are pursuing engineering and technical studies in part because many of them fear manufacturing work is doomed. The result: Insufficient labor constricts production in 17% of industrial companies in the European Union, almost twice the precrisis level, Daniel Michaels and Paul Hannon report.

China Keeps Making Deals in Silicon Valley

Chinese investors are pressing ahead with investments into startups and venture-capital funds, emboldened in part by ambiguities in U.S. regulations. Key rules for implementing a 2018 U.S. law intended to curb foreign access to sensitive technologies are yet to be defined, often leaving investors and entrepreneurs to determine which deals are permissible. For their part, U.S. tech entrepreneurs want to nurture connections to China. Investment ties between the two countries thus remain tight, Heather Somerville reports.

WHAT ELSE WE’RE READING

President George W. Bush’s top economic adviser quit the Republican party. “I just came back from city hall, where I switched my voter registration from Republican to unenrolled (aka independent),” Greg Mankiw, chairman of the Council of Economic Advisers from 2003 to 2005 and now a Harvard professor, writes on his blog. The reasons? Republicans have become too closely associated with President Trump. And he wants to vote for a center-left, rather than far-left, candidate in the Democratic primary.

Two-thirds of big cities predict a recession will hit in 2020 or 2021. “While the slowing economy is largely a global phenomenon, the U.S.’s trade disputes with China, Canada, Mexico and the European Union have added more uncertainty to the future. These factors are starting to affect city finances. For the first time in seven years, cities anticipate a decline in revenue as they close the books on fiscal year 2019,” the National League of Cities writes in its annual “City Fiscal Conditions” report.



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