U.S.-China stalemate, infrastructure bill due and Covid infections surge.
Standoff
China hit back at U.S. policies in a jittery start to high-level talks in Tianjin, issuing a list of demands and declaring the relationship between the world’s two largest economies in a “ stalemate.” Vice Foreign Minister Xie Feng told visiting Deputy Secretary of State Wendy Sherman that some Americans want to portray China as an “imagined enemy,” according to accounts released by the Foreign Ministry as talks kicked off. Still, Xie said Beijing was willing to explore common ground and deal with the U.S. on an equal footing. The talks in Tianjin, about 60 miles east of the capital Beijing, represent the highest-level face-to-face meeting between the two sides since an acrimonious exchange in Alaska in March. If they are fruitful, they could set up a meeting between Presidents Joe Biden and Xi Jinping, possibly at a Group of 20 summit in October.
Bill due
Senators negotiating a $579 billion infrastructure package are aiming to finish negotiations early this week, under pressure from colleagues to save an August recess and allow the Senate to turn toward preventing a government shutdown and debt ceiling default in the fall. A pending five-week break scheduled to begin Aug. 9 is motivating the 22-member bipartisan group to reach a deal after Republicans spurned Senate Majority Leader Chuck Schumer’s deadline for action last week. Schumer has the ability to quickly stage a re-vote on his failed motion to begin infrastructure debate as soon as Monday, but people familiar with the talks say that’s likely to push later in the week given lingering disputes about how to pay for it, transit funding and other issues.
Virus spreads
The top U.S. infectious disease expert, Anthony Fauci, warned that the nation is moving in the “wrong direction” in combating a new wave of the pandemic as vaccinations slow, and said a booster shot may be needed especially for the most vulnerable. The number of cases in the U.S. surged by 62% over the previous week. Covid infections globally increased the most in two months as the spread of the delta variant and low levels of vaccination in most Southeast Asian nations lead to higher numbers. Still, fatalities have stayed relatively low in the U.S., U.K. and Spain due to high vaccine coverage, while deaths are soaring in India, Brazil and Indonesia.
Markets drop
It’s a risk-off tone to the start of a busy week of earnings and policy updates, with China’s widening technology crackdown weighing on risk sentiment. Overnight, the MSCI Asia Pacific Index fell 1% while Japan’s Topix index rose 1.1%. In Europe the Stoxx 600 Index had fallen 0.4% by 5:18 a.m. Eastern Time. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.24%, oil fell and gold rose. Bitcoin soared to approach $40,000, a rally some attributed to traders exiting bets on declines as well as ongoing speculation over Amazon.com Inc.’s potential involvement in the cryptocurrency sector.
Coming up...
It’s a quiet day ahead of the start of the Federal Reserve meeting this week. June new home sales data is released at 10:00 a.m. Tesla Inc. reports second-quarter earnings after the bell, with Lockheed Martin Corp., Hasbro Inc. and Ameriprise Financial Inc. also due.
What we've been reading
Here's what caught our eye over the last 24 hours.
- Debt-limit deadline leaves Democrats weighing options for fix.
- Bitcoin chart pattern points to $44,000.
- Tunisia president suspends parliament as Covid fuels unrest.
- Don’t expect labor constraints to go away any time soon.
- China education tycoon loses $15 billion as shares fall 98%.
- Follow the Tokyo summer Olympics medal count.
- U.S. parents pay more than half of their kids’ college costs.
- Seeing the 'real' Big Bang through gravitational waves.
And finally, here’s what Joe's interested in this morning
I've been on vacation for the past week, and I see that there's still no official word yet on whether Jerome Powell will be reappointed as head of the Federal Reserve, so that's what's on my mind still.
As the debate wears on about whether President Biden should keep him in place or not, there will no doubt be a lot of talk about the preferences of the "progressives" within the Democratic party. However, in the context of the Fed, progressive ideas can mean two distinct things that are worth teasing apart.
Some progressives could be said to be employment hawks. Basically the opposite of inflation hawks. Tight job markets mean more worker flexibility, higher wages, and greater labor power more generally. Strong labor markets can also be part of a racial justice mission, as we've seen that as the economy improves the spread between, say, white and black unemployment narrows considerably.
In a quote to the WSJ last week, AFL-CIO chief economist William Spriggs said he worried that some progressives have "amnesia" about how difficult it is to get a sitting Fed chair to place as much emphasis on employment as Powell has.
Another distinct progressive priority that pertains to the Fed is the tighter regulation of financial institutions. Senators Elizabeth Warren and Sherrod Brown both recently criticized Powell for having an overly lax approach to regulating big banks. In a column that got a lot of attention, Robert Kuttner at The American Prospect called Powell "dismal" on financial regulation.
Of course, if we had a Venn diagram of the two wings here -- employment hawks and those demanding greater financial oversight -- there would no doubt be a large overlap between the two circles. Nonetheless, there are still distinct perspectives on how the Fed should do its job which are worth keeping in mind.
Joe Weisenthal is an editor at Bloomberg.
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