5 cosas de las que estar pendientes este miércoles en Wall Street

Baby steps

A collective sigh of relief  was heard around the world when President Donald Trump decided to delay the imposition of 5% extra tariffs on Chinese goods by two weeks, in deference to the 70th anniversary of the People’s Republic on Oct. 1. In a somewhat retaliatory gesture of goodwill, China is considering allowing companies to resume buying American agricultural products including soybeans and pork, according to people familiar with the situation. That would be a potential boon for farmers in key Trump-supporting states. A little perspective, though, please. While this all might feel like a shift from tit-for-tat tariff hikes to a de-escalation in tensions, another two-week reprieve doesn’t do much to address the schism that remains on fundamental issues — and Trump still has further tariff increases planned.

Decision day

Mario Draghi faces one of the most contentious policy meetings of his European Central Bank presidency Thursday as he prepares to ramp up monetary stimulus despite some skepticism in Germany, France and the Netherlands. Still, the consensus expectation of economists is for the resumption of a bond-buying program in October in addition to a 10 basis-point reduction in interest rates to minus 0.5%. Lenders will also be watching for the introduction of a tiering system that would exempt banks’ excess reserves from negative charges.

Mixed messages

Trump’s tariff delay offered a glimmer of hope for global oil demand, while U.S. crude inventories dropped last week. But just as OPEC and its allies meet in Abu Dhabi, the International Energy Association said the cartel faces a significant challenge in managing the market as the threat of oversupply returns. Meanwhile, Bloomberg News reported that Trump has discussed easing sanctions on Iran to help secure a meeting with President Hassan Rouhani later this month. Any deal that would ease the prohibition on purchases of Iranian oil would likely add to the looming 2020 glut. Meanwhile, deeper production cuts aren’t yet on the agenda in Abu Dhabi after  OPEC released its own report highlighting slowing demand growth, rising supplies and the risk of a “relapse” into surplus.

Markets

The MSCI Asia Pacific Index rose 0.5% overnight as stocks in Shanghai led the way and Japan’s Topix index jumped 0.7%. In Europe, the Stoxx 600 Index was 0.1% lower by 6:10 a.m. Eastern Time, with tourism and energy shares posting the biggest losses. S&P 500 futures pointed to a modest gain at the open, the 10-year Treasury yield was at 1.726% and gold traded higher.

Coming up…

Investors will be closely watching U.S. inflation data out Thursday as the core consumer-price index is expected to post its biggest annual advance in a year and the broader CPI is forecast to climb 1.8% for the second straight month. If economists’ expectations  are right, it may complicate the Federal Reserve’s policy decision next week. And on the other side of the pond, the U.K. government was forced to reveal the full scale of the damage a no-deal Brexit could cause and is due back in court, this time in Belfast, a day after Scottish judges ruled Prime Minister Boris Johnson’s suspension of Parliament was unlawful.

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

• Hidden CO2 footprints on banks’ books could be the next dodgy mortgage.
• Brexit is making English Civil War comparisons hard to dismiss.
• Hong Kong’s stock exchange won’t find love in London.
• Electric cars are here. Now how about selling them.
• Democrats brace for an endurance test at Houston debate.
• Trump edges closer to maybe doing something about guns.
• This is how impurities end up in America’s blood pressure pills.

And finally, here’s what Joe’s interested in this morning

President Trump tweeted yesterday that the Fed should cut interest rates to zero (or lower) and that the government should take advantage of this once-in-a-lifetime opportunity by refinancing debt to longer maturities. Of course he came in for a lot of criticism, from people who are experts in economic policy. But in Trump’s defense, his plea is the logical extension of how mainstream people tend to think about government finances. Lots of people have been calling for Treasury to «lock in» low rates and spend that money on infrastructure. Basically, the logic here is that the U.S. government is like a casino operator, or Kraft Heinz, or maybe like Apple. In other words, when there’s an opportunity to get cheap financing to fund buybacks or capital expenditures, it makes sense to strike while the iron’s hot. But there are essentially two problems with this view. One is economic and one is political. The economic part is that the federal government is not capital-constrained like a private enterprise. The government spends in its own money. So whether interest rates are 0%, 1%, or 5%, it doesn’t really matter — that’s not what’s holding spending back. The real constraint on government spending is politics. New expenditures have to be passed by Congress, and that’s been notoriously difficult in D.C. for quite a long time. Nobody wants to vote for fresh spending when the other party is in the White House and can reap the political gain for the benefit. Again, even if money is «cheap» that’s not a particularly important consideration. Republicans under Obama and Democrats under Trump didn’t become more inclined to spend as rates went down. That’s not what matters to them. So back to Trump. His plea gets some aspects of the economics wrong. But if you think the U.S. is in fact borrowing constrained — as everyone who warns about the deficit implicitly does! — then his tweets make a lot of sense.