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Significant Consequences

Global oil demand is expected to fall in the first three months of the year—the first quarterly drop in more than a decade, according to a closely watched forecast from the International Energy Agency. The cause: a likely economic slowdown in China related to the novel coronavirus outbreak. The IEA also slashed its oil demand growth forecast for all of 2020, David Hodari reports. “The consequences of [the virus] for global oil demand will be significant,” the IEA said in its report. “There is already a major slowdown in oil consumption and the wider economy in China.”


U.S. consumer prices for January are expected to rise 0.2% from a month earlier and 2.5% from a year earlier. Excluding food and energy, CPI is forecast to increase 0.2% and 2.2%. (8:30 a.m. ET)

U.S. jobless claims are expected to rise to 210,000 from 202,000 a week earlier. (8:30 a.m. ET)

The Senate Banking Committee holds a hearing for Federal Reserve nominees Judy Shelton and Christopher Waller at 9 a.m. ET. Here’s what to watch.

Dallas Fed President Robert Kaplan speaks in Grapevine, Texas, at 12:45 p.m. ET and New York Fed President John Williams speaks in New York at 5:30 p.m. ET.


Coronavirus Caution

Central bankers are adopting a cautious stance as they consider how the coronavirus outbreak in China could ripple through the global economy. Over two days of hearings on Capitol Hill, Federal Reserve Chairman Jerome Powell offered an upbeat assessment of the U.S. outlook while warning of risks to global supply chains from production shutdowns in China. Mr. Powell also cited the prospect of a hit to tourism and exports and financial markets as ways the virus could dent U.S. economic growth: “We’ll begin to see it in economic data coming up fairly soon. It’s too uncertain to even speculate about what the level of that will be.” Mr. Powell said the central bank will want to see evidence that disruptions stemming from China are persistent and material for the U.S. economy before it would consider cutting interest rates, Nick Timiraos reports.

Survey says: China’s coronavirus outbreak will likely dampen U.S. economic growth in the first quarter, according to a survey of economists by The Wall Street Journal. More than 80% of economists expected the virus will have a small impact on U.S. gross domestic product growth from January to March, or less than 0.5 percentage point. Just 5% of forecasters expected a significant reduction of more than 0.5 percentage point off the quarter’s annual growth rate, while 10% expected no impact, Harriet Torry and Anthony DeBarros report.

The European Union stuck to its outlook for subdued but stable growth in the coming two years. Gross domestic product in the 19-member eurozone should grow 1.2% in both 2020 and 2021, the EU said. One emerging risk: coronavirus. “The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The longer it lasts, however, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions,” the European Commission said in its forecast.

The coronavirus outbreak has weighed on demand for crude oil, copper and soybeans. But it’s prompting a rally in some niche commodity markets. A drop in Chinese output has outweighed any decline in demand for raw materials including thermal coal, burned to generate electricity, vanadium and molybdenum, used to toughen up steel, and specialty metal manganese. The prices of these commodities have climbed as buyers in China and elsewhere try to secure supplies, underlining China’s complex position in the world economy as a major consumer, supplier and processor of raw materials, Joe Wallace reports.

The latest: China ousted two top Communist Party officials at the center of the new coronavirus outbreak hours after health officials in Hubei province confirmed 14,840 new infections on Wednesday alone—an almost 10-fold increase from a day earlier—indicating that the epidemic is far from tapering off, Stu Woo reports.

Blueprint vs. Red Ink

The federal budget deficit grew 25% in the first four months of the fiscal year. That figure was exaggerated by a quirk in the calendar that brought forward payments of federal benefits, such as veteran and retiree benefits. But the underlying trend is consistent: The deficit is growing. January was the fourth month in a row the annual deficit topped $1 trillion. As a share of gross domestic product, year-over-year deficits were 4.9%, compared with 4.3% in the previous 12 months. That was the highest deficit-to-GDP ratio since May 2013, when the unemployment rate was 7.5% and real GDP grew just 0.12% from the previous quarter, Kate Davidson reports.

The budget that President Trump released this week is a model of mainstream Republican orthodoxy. It asks for more defense money to fend off “rival nation-states” while decrying “a bloated federal government with duplicative programs and wasteful spending.” It sternly warns that mounting debt and deficits are “a serious threat to America’s prosperity” that will “crowd out more productive investments.” In short, as a statement of fiscal conservative principles, it is utterly unsurprising, except for this: Mr. Trump isn’t a fiscal conservative. In words and deeds he has seldom shown the concern over debt, deficits or government spending that his budget does. The White House expects that this fiscal year, the budget deficit will top $1 trillion, almost double the deficit in President Obama’s last year in office. The cause is both the tax cuts Mr. Trump championed and government spending he agreed to: Spending will reach 21.6% of gross domestic product this year, the highest since 2012, Greg Ip writes.


The biggest fan of President Trump’s steel tariffs is now suing over them. “JSW [Steel]’s experience of the tariff wars is peculiar not only because the company energetically backed the tariffs. [President and CEO John] Hritz continues to praise the administration even while battling the Commerce Department in court. The whole situation is an awkward lesson in unintended consequences—it makes you wonder whether, when it comes to trade policy, some capitalists really don’t like capitalism that much,” Bryan Gruley and Joe Deaux write at Bloomberg Businessweek.


Real Time Economics has launched a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.

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