1. For years, falling wages and high unemployment seemed proof that low-wage workers needed an entirely new set of skills to succeed in an economy shaped by technological change and globalization. It turns out what they needed most was time. As the economic expansion reaches a record age and unemployment remains near generation lows, the fortunes of low-skilled workers have turned up markedly. What looked like a permanent setback may be mostly cyclical.
2. Federal Reserve Chairman Jerome Powell signaled the central bank is ready to cut interest rates later this month to cushion the U.S. economy against the risks of slower global growth and trade-policy uncertainty. In testimony Wednesday on Capitol Hill, Mr. Powell said the economic outlook hadn’t improved in recent weeks and emphasized several risks. He played down developments that might have buoyed expectations such as the strong June jobs report and the recent trade truce between the U.S. and China. “The bottom line for me is the uncertainties around global growth and trade continue to weigh on the outlook,” Mr. Powell told the House Financial Services Committee.
3. The unmistakable signal from U.S. Federal Reserve Chairman Jerome Powell that a rate cut is imminent hands China more room to maneuver in easing its own monetary policy. It’s not as simple as matching one rate cut in Washington with another in Beijing, though. China’s complex array of monetary tools is in flux, and the instrument that’s nominally still the “benchmark” is falling into disuse. Policy makers have given few clues about their intentions, and a meeting of the Politburo later this month may be the first opportunity to clarify the government’s plans. Bloomberg provides an analysis of different monetary easing "venues."
4. The Trump administration is increasingly concerned about prospects for a trade deal with China, amid an unexpected reshuffling of the Chinese negotiating team and a lack of progress on core issues since the Group of 20 summit in Japan, according to U.S. officials and senior Republicans briefed on the discussions. Commerce Minister Zhong Shan, regarded by some White House officials as a hard-liner, has assumed new prominence in the talks, participating in a Tuesday teleconference alongside Chinese Vice Premier Liu He, who has headed the Chinese trade team for more than a year.
5. Under President Xi Jinping, China has more forcefully asserted its claims to more than 80% of the South China Sea, building runways and military facilities on territory claimed by other nations. It has also raised a navy of more than over 300 ships, eclipsing the U.S. to become the largest in the Asia Pacific. China’s investments in patrolling the South China Sea have given it a leg up in the race to secure energy and fishing resources that account for about a tenth of the global catch. In addition, China has utilized less conventional means to clear the sea of its maritime adversaries—a so-called maritime militia of well-equipped vessels numbering in the hundreds—disguised as fishing vessels that patrol, surveil, resupply, and sometimes, provoke.
6. If Hong Kong is included, China is the largest creditor in the entire world. Beijing's foreign loans dominate global markets almost to the same degree as its toys, smartphones and electric scooters do. From Kenya to Montenegro, from Ecuador to Djibouti, roads, dams and power plants are being built with billions in loans from Beijing. And all of those countries will have to pay back those loans in the years to come. With interest.
7. In the bizarro world of global debt, even bonds from Europe’s emerging markets are spewing out negative yields. Sky-high bond prices — long a fact of life in the core of the eurozone’s debt markets — are increasingly spilling into what was once considered risky territory. All of the Czech Republic’s euro-denominated debt, for example, now trades at sub-zero yields, which means prices are so high that buyers accept a loss to hold them. Short-dated Hungarian bonds and a growing slice of Poland’s debt are following suit, with Warsaw’s 10-year yields just fractionally above zero. Emerging market investors, who traditionally viewed these markets as their domain, are being forced to look further afield for returns, fueling a debt rally from Croatia to Kazakhstan.
8. Opposition politicians in Italy have demanded an explanation from Matteo Salvini, the deputy prime minister, over claims that his party covertly pursued financing from Moscow ahead of the European elections in May. A close aide to Mr. Salvini took part in talks with Russian businessmen to pump funding to his far-right League party through a fuel deal worth over €1 billion, according to a widely reported story on the website BuzzFeed, which obtained an audio recording of the meeting. The meeting took place at the Metropol hotel in Moscow in October 2018 on the sidelines of a visit to the Russian capital by Mr Salvini. There is no suggestion that Mr Salvini attended the meeting. A full transcript of the meeting is here.
9. U.S. trade officials are launching a probe of France’s planned tax on digital services, kicking off a spat with Paris as well as a global fight over how to tax the growing internet economy. U.S. Trade Representative Robert Lighthizer said Wednesday his office would launch a probe of the digital services tax, or DST, under the same broad law the Trump administration relied on for its trade conflict with China.
10. Iranian boats tried to impede a British oil tanker near the Gulf - before being driven off by a Royal Navy ship, the Ministry of Defense has said. HMS Montrose, a British frigate escorting the tanker British Heritage, was forced to move between the three boats and the tanker, a spokesman said. He described the Iranians' actions as "contrary to international law."
11. South Korea’s leader warned Wednesday of an “unprecedented emergency” in relations with Japan, as a spat between the U.S. allies over historical grievances threatens to boil over into a full-blown economic confrontation and damage the global electronics industry. The dispute stems from a Seoul court ruling last year ordering Japanese companies to pay compensation for their use of forced labor during Japan’s colonial rule of the Korean Peninsula from 1910 to 1945. Japan maintains that the compensation for forced labor was fully settled in a 1965 pact that restored diplomatic ties, though elderly former conscripts had pursued their own separate claims.
12. The sprawling, multibillion-dollar Malaysian development fraud scandal that has toppled a prime minister and stretched from Hollywood to Wall Street is threatening to implicate another major global financial institution: Deutsche Bank. The U.S. Justice Department is investigating whether the German lender violated foreign corruption or anti-money-laundering laws in its work for the 1Malaysia Development Bhd. fund, which included helping the fund raise $1.2 billion in 2014 as concerns about the fund’s management and financials had begun to circulate, according to people familiar with the matter.
13. The White House is pushing congressional leaders to strike a spending deal and increase the debt limit in the next two or three weeks, jolted by a recent report that found the Treasury Department was running out of cash much faster than previously forecasted. But the talks have bogged down amid acrimony between Democrats and the White House, and now Washington’s leaders run the risk of a fiscal pileup that could also imperil President Trump’s effort to update the North American Free Trade Agreement.
14. A federal appeals court voiced skepticism that a central feature of the Affordable Care Act, known as Obamacare, is constitutional. While a ruling isn’t expected for months, there seems to be a real possibility the court will strike down parts or all of the law, which has greatly benefited the industry. In that scenario, the matter would likely wind up at the Supreme Court.
15. Federal Reserve Chairman Jerome Powell on Wednesday said Facebook's planned Libra digital currency raises "many serious concerns" including potential risks to the stability of the financial system because of the huge user-base of the social media giant. At a House Financial Services Committee hearing, Powell said the central bank has a working group that's looking at Libra.
16. Facebook is looking to buy game studios and ink exclusive deals for virtual reality versions of well-known games to bolster its Oculus VR headset business, according to two people familiar with the matter. As part of the new effort, in which CEO Mark Zuckerberg is personally involved, Facebook has already signed deals for exclusive VR versions of the popular games “Assassin’s Creed” and “Tom Clancy’s Splinter Cell,” one of the people said. Facebook hopes that seeding Oculus with popular game franchises will help attract more people to buy its VR headsets—which have so far been only moderately successful—and increase the amount of time spent on the social network’s platform. Those interested in the gaming "space" can access the Goldman Sachs Digital Gaming Sector Summary by clicking here.
17. When the members of Volkswagen’s supervisory board meet today, they will mostly focus on the future of the German carmaker’s co-operation with Ford. The two giants agreed in January on a joint production of pickup trucks. Herbert Diess, the boss of VW, now wants to work more closely with the American firm making electric cars.
18. PG&E Corp. knew for years that hundreds of miles of high-voltage power lines could fail and spark fires, yet it repeatedly failed to perform the necessary upgrades. Documents obtained by The Wall Street Journal under the Freedom of Information Act and in connection with a regulatory dispute over PG&E’s spending on its electrical grid show that the company has long been aware that parts of its 18,500-mile transmission system have reached the end of their useful lives.
19. Big cities are poised to get bigger, richer and more powerful — at the expense of the rest of America, a report out later today from McKinsey Global Institute asserts. McKinsey's analysis of 315 cities and more than 3,000 counties shows only the healthiest local economies will be able to successfully adapt to disruptions caused by the next wave of automation. Wide swaths of the country, especially already-distressed rural regions, are in danger of shedding more jobs. For those interested, the report will be posted at Axios.com today at 5pm ET.
20. The National Weather Service issued flash flood emergencies — its highest alert level for flooding — on Wednesday for Orleans and Jefferson parishes in Louisiana. The agency urged officials and residents along the Gulf Coast to review their hurricane plans, because of the threat of high winds and significant flooding from heavy rainfall and storm surge in parts of Louisiana, Mississippi, Alabama and East Texas.
21. Machine enhanced humans -- or cyborgs as they are known in science fiction -- could be one step closer to becoming a reality, thanks to new research from the Lieber Research Group at Harvard University, as well as scientists from University of Surrey and Yonsei University. Researchers have conquered the monumental task of manufacturing scalable nano-probe arrays small enough to record the inner workings of human cardiac cells and primary neurons. Read the whole thing.
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Quick Links: Babies point at objects because they really want to touch them. How millennials replaced religion with astrology and crystals. Five reasons to sequence your dog’s DNA. Self-destructing mosquitoes and sterilized rodents: the promise of gene drives. Surging cases have dashed all hope that polio might be eradicated in 2019. The importance of the HPV vaccine. Billionaire Sean Parker is nerding out on cancer research. Earth's helium is running out and it has dire consequences for science. A new way to grow crops in marginal soils could help feed the world. Worldwide funding of clean-energy projects fell to its lowest level in six years. China’s BYD is driving the electric car revolution. Microsoft might crush Slack like Facebook crushed Snapchat. Amazon is flirting with a $1 trillion valuation again.Recode interview with Goldman Sachs CEO David Solomon. Why premium grocers are biting the dust. Lisa Heffernan finally gets her own currency.
Political Links: German chancellor Angela Merkel seen shaking again. Macron’s staying power tested by French mayoral races. Xi makes waves in South China Sea ahead of summer conclave. Hong Kong’s protesters put AirDrop to ingenious use to breach China’s Firewall. Sports drink's sales surge in Hong Kong after dropping TV ads. FBI makes arrests in Puerto Rico corruption scandal. There’s a deal to be had between the U.S. and Iran. The unexpected effectiveness of Donald Trump. Top Trump advisers hint at support for progressive proposal to cap drug price hikes. President Trump's unprecedented social media campaign is "way ahead of the field." How Fox News conquered Facebook. How much money did top Democrats raise for the 2020 election last quarter? Biden to outline his post-Trump foreign policy plans. Biden lead shrinks, Warren rises. Warren makes inroads with black voters. Sanders goes on a hiring spree in New Hampshire. David Remnick has a long interview with Rep. Alexandria Ocasio-Cortez (D-NY). Ramesh Ponnuru: Winning the Obamacare suit would be a disaster for Republicans. In Los Angeles, many are desperate for homeless people to go elsewhere.
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John Ellis
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