THE TICKER

Here’s a stumper for oddsmakers: What will President Trump agree to first, a deal with Democrats to end the government shutdown or one with the Chinese to cease trade hostilities? 

Unlikely as it may seem, the advantage could be shifting in favor of a breakthrough with China. Such an outcome appeared significantly more remote just a month ago, when Trump set a 90-day egg timer for negotiations with Beijing before resuming intensification of the trade standoff. 

But as most of Washington fixates on the shutdown stalemate, a possible resolution of the standoff between the world’s two biggest economies could be in the works. Chiefly, new shakiness in both economies is adding urgency to two days of face-to-face negotiations between U.S. and Chinese officials that are wrapping up today in Beijing.

Indeed, The Washington Post’s Anna Fifield, Gary Shih and David Lynch point to “mounting optimism” for progress on both sides as the talks kicked off Monday. And Chinese Vice Premiere Liu He, President Xi Jinping's economic czar, made an appearance “to spur on negotiators” and signal Chinese seriousness. 

Back in Washington, Commerce Secretary Wilbur Ross told CNBC there's a "very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues.” The Chinese are planning on issuing a detailed readout at the conclusion of the talks amid signs of progress, Bloomberg reports

Trump tweeted his optimism this morning:

The Chinese side has made broad offers to meet U.S. demands —  to boost purchases of American goods and services, better protect American intellectual property and liberalize access to their markets.

Now, negotiators are attempting to hammer out specifics and enforcement mechanisms, the Wall Street Journal’s Lingling Wei reports. “For instance, the U.S. side wants China to be specific about what it will purchase by specific dates. In addition, if Beijing revises regulations to boost U.S. access to China’s markets, U.S. negotiators want assurance that it won’t use government authority over licensing, environmental regulation and other areas to hinder U.S. companies,” Wei writes. 

To that end, the Post team reports, China recently released a draft law to bar Chinese officials from interfering with foreign companies’ operations. And it has started buying American rice and soybeans again and scrapped punitive tariffs it imposed on U.S. autos last summer. (On the other hand, the FT’s George Magnus sees little more than Chinese rhetoric changing where it matters: “Xi is prepared to accede to change but not to anything that threatens China’s core interests. He cannot risk caving in to US pressure.”)

From Bloomberg's Tracy Alloway: 

If the two sides make sufficient progress, Liu could travel to Washington for higher-level talks with U.S. Trade Representative Robert Lighthizer as soon as next week. Trump could take up the matter himself toward the end of the month with Chinese Vice President Wang Qishan, since both are scheduled to be on hand at the World Economic Forum in Davos, per the Post team. 

The usual Trump-specific provisos apply: Nothing’s done until it’s done, and sometimes not even then, as this president has demonstrated time and again that it’s his prerogative to change his mind.

But both countries have good reason to hunt for an off-ramp from a confrontation. China’s economic growth is on track to slow to a pace not seen there since 1990, and Chinese stocks have lost about a quarter of their value over the past year. New factory price data shows sliding that will eat into industrial profits, in another sign of the country's economic cooling, Bloomberg reports. Trump pointed to the weakness Sunday to argue that Beijing is ready to deal. But the S&P 500 is also down nearly 9 percent since Trump and Xi met for dinner at the G-20 summit early last month. 

And trade-related woes continue to roil both U.S. markets and corporate earnings expectations.

White House economist Kevin Hassett acknowledged that fact after Apple sent the broader market reeling last week when it slashed its revenue outlook, citing trouble in China. ““There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded . . . until we get a deal with China,” Hassett told CNN.

Executives in the industrial Midwest, electorally critical to Trump, are raising alarms about the impact on profits and jobs. And Bank of America economists are warning the advantage the U.S. enjoys from its position of relative economic strength could start to erode by spring. 

The ongoing mess in Washington could also spur Trump to action on the China front. As Ben Lavender, an analyst at China Market Research Group in Shanghai noted to the Post team, “Trump would probably like something he can point to as a win, even if it’s not substantive, amid the wall and government shutdown chaos.” 

MARKET MOVERS

Nellie Liang withdraws. WSJ's Nick Timiraos and Andrew Ackerman: "Former Federal Reserve economist Nellie Liang, whom the Trump administration had nominated to serve on the central bank’s board of governors, withdrew from consideration Monday, a casualty of opposition from the banking industry which feared she would stymie efforts to loosen financial regulation. Ms. Liang said in a statement Monday she had withdrawn 'because the likelihood of a prolonged process could have left me in professional limbo for too long.' ... 

"Ms. Liang, who retired from the Fed two years ago, was nominated last September by [Trump] to one of two remaining vacancies on the Fed’s seven-member board, but her nomination immediately met resistance from bank lobbyists and some Republican senators."

One question: Will Trump now seek a nominee committed to a more dovish monetary policy? He took to Twitter again this morning to complain about the Fed's hiking: 

Meanwhile, the Fed is flying blind on some key economic measures thanks to the shutdown, Bloomberg reports: "The Commerce Department, which houses the statistics-issuing Census Bureau and Bureau of Economic Analysis, is among the agencies -- covering about 25 percent of government funding -- that lack approved spending. That puts on hold the November international-trade data originally scheduled for Tuesday morning in Washington, following the postponement of reports on factory orders, construction spending and new home sales."

— Morgan Stanley to investors: Stay cautious. Bloomberg's Lu Wang: “Two weeks of rallies in U.S. stocks haven’t been enough to convince one of the widely followed Wall Street strategists to drop his cautious view on the market. Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, whose 2018 prediction for a rolling bear market proved prescient, says in his late note to clients that, while he’s less pessimistic about stocks, investors hoping to buy the dip should be aware that Apple Inc.’s sales warning and a plunge in a gauge of U.S. manufacturing are likely the start of a new round of negative news . . . While a change in the Fed’s tone from last year, investors need more assurance than just words after the central bank in December lifted interest rates for a ninth time since 2015.”

— Housing market may see a boost. WSJ's Ben Eisen and Laura Kusisto: “Mortgage rates have fallen to around their lowest levels in eight months, offering a potential boost to the housing market after a rough patch in recent months. The average rate for a 30-year fixed mortgage fell to 4.51%, matching the lowest level since last spring...  The decline stands to give consumers another shot at obtaining low rates on loans to purchase or refinance their homes, if they can stomach volatile financial markets and still lofty home values."

— Oil gains flowing. Bloomberg's Alex Nussbaum: “Oil notched its longest stretch of daily gains in more than 17 months as fresh trade talks between the U.S. and China added to optimism that a global supply glut will be averted. Futures closed 1.2 percent in New York, reaching their highest settlement in three weeks."

TRUMP TRACKER

TRADE FLY-AROUND:

— Brexit shouldn't prevent U.S.-U.K. trade deal. Antony Phillipson for WSJ: “A key question throughout the Brexit negotiations has been whether the U.K. will be able to pursue a free-trade agreement with the U.S. Both [Trump] and Prime Minister Theresa May have emphasized that an ambitious deal is a shared priority. Yet some in the U.S. government have expressed concern, echoed in a Wall Street Journal editorial, that this won’t be possible — that a free-trade agreement is ruled out by the deal the U.K. reached with the European Union at the end of November, and on which the House of Commons will vote later this month.

“These concerns are unwarranted. The deal states that the U.K. will have the freedom to conduct its own independent trade policy for the first time in more than 40 years . . . launching negotiations with the U.S. will be a priority. . . . The U.K. is looking to build on what is already a hugely important economic partnership. . . Each country is the biggest investor in the other, and every day more than a million Brits go to work for American companies and more than a million Americans go to work for British ones.”

Brexit's tall price tag. Bloomberg's Silla Brush: “Banks, insurers and money managers are planning to move about 800 billion pounds ($1 trillion) of assets from the U.K. to the rest of Europe as Brexit uncertainty takes its toll, according to a survey conducted by EY. Consulting firm EY said its estimate may be low, because many firms haven’t publicly declared the value of assets being transferred.

“According to another group’s estimate, as much as 800 billion euros of balance-sheet assets could move to Frankfurt alone. EY said its 'conservative' estimate is based on statements from 20 companies that have announced a transfer of assets out of London. More than 7,000 jobs could relocate from London soon ....”

MELTDOWN WATCH:

Mulvaney eyes USC job. NYT's Maggie Haberman and Jonathan Martin: "Mick Mulvaney, the acting White House chief of staff, as recently as late last year explored the possibility of becoming president of the University of South Carolina, four people familiar with the discussions said. Mr. Mulvaney, a congressman from South Carolina for six years before joining the Trump administration, initiated a discussion with a senior official at the university late last year about the position, which is going to become open this summer... As of last week, a person close to Mr. Mulvaney said he was still interested in the presidency of his home state university, which will become open this summer. Hogan Gidley, a White House spokesman, said that was not the case."

POCKET CHANGE

— World Bank president steps down. AP's Martin Crutsinger: “Jim Yong Kim, the president of the World Bank, announced Monday he is resigning at the end of January. Kim’s unexpected departure three years before his term was set to expire is likely to set off a fierce battle between the Trump administration and other countries who have complained about the influence the United States exerts over the World Bank.

“In a letter to bank staff, Kim said that he has long believed that the key to bridging the gap between the massive financing needs of developing countries and the amount of support available was to work with the private sector. 'I have therefore decided that it’s time for me to take on new challenges and fully focus my efforts on leveraging private finance for the benefit of people around the work,' Kim said in his note to staff. Kim’s departure will give [Trump] the opportunity to nominate his own choice to fill the World Bank post.”

— Sears scrambling. WSJ's Soma Biswas and Suzanne Kapner: “Edward Lampert, the billionaire who led Sears Holdings Corp. into bankruptcy, is running out of time in his last-ditch effort to keep the debilitated retailer alive. The hedge-fund manager and his advisers spent the weekend revamping his $4.4 billion offer to buy the business out of bankruptcy . . . after Sears’s independent directors said on Friday that they didn’t consider the bid a qualified offer.

“Sears’s unsecured creditors continue to push for liquidation, arguing they won’t recover enough financially under Mr. Lampert’s offer, the people said. Liquidation firm Abacus Advisors — which has already handled the closures of Sears stores since the retailer filed for bankruptcy filing in October — has been selected as a qualified bidder . . . The two sets of liquidation firms that earlier submitted competing bids to liquidate all of Sears have stepped back from the bidding process.”

— Greenspan responds to AOC. CNBC's Jeff Cox: “Raising the marginal tax rate on the richest Americans to 70 percent would put a major dent in the economy, former Federal Reserve Chairman Alan Greenspan said Monday. During an interview with the CBS program '60 Minutes' that aired Sunday, freshman Rep. Alexandria Ocasio-Cortez proposed that such a levy be imposed to pay for what she calls a 'Green New Deal' to slash carbon emissions and ultimately wean the U.S. off its reliance on fossil fuels.

“The tax would apply to those earning more than $10 million a year, a group that currently pays the top marginal tax rate of 37 percent. Without getting into the details, Greenspan said the move would have dire consequences. 'If you’re willing to take a significant drop in economic activity, I would suggest that,' Greenspan, who was central bank chief from 1987 to 2006, told CNBC’s 'Squawk on the Street.' 'Maybe I better make myself clear,' he then added. 'I think it would be a terrible mistake.' "

— The new exchange on the block. WSJ's Alexander Osipovich: “A group of financial heavyweights including Morgan Stanley, Fidelity Investments and Citadel Securities LLC plans to launch a new low-cost stock exchange to challenge the New York Stock Exchange and Nasdaq Inc., the companies said. The creation of the new venue, called Members Exchange or MEMX, comes after years of frustration among Wall Street brokers and traders with the fees charged by U.S. stock exchanges. MEMX will be controlled by the nine banks, brokerages and high-frequency trading firms funding it, according to a news release. Such an arrangement harks back to the era when exchanges were owned by their members, typically stockbrokers.”

Amazon surpassed Microsoft as the world’s most valuable public company, with a market cap of $797 billion, signaling the tech industry’s enduring market dominance even after turbulent months in which investors pummeled their shares.
WSJ
Business
Half of Americans don't know this, apparently. Don't be one of them.
Christopher Ingraham
Innovations
The BreadBot is an autonomous artisanal breadmaking machine that mixes, kneads, bakes and cools bread without human assistance. The robot breadmaker — which can produce 235 loaves a day — is on display at this year’s CES in Las Vegas.
Peter Holley
MONEY ON THE HILL

Trump eyes emergency declaration for the border. The Post's Bob Costa and Philip Rucker: "Trump administration officials made an urgent case Monday that the situation at the U.S.-Mexico border has reached a crisis level, laying the groundwork for [Trump] to possibly declare a national emergency that would empower him to construct a border wall without congressional approval. With the federal government partially shut down amid his stalemate with Congress, Trump will attempt to bolster the administration’s position Tuesday by delivering a prime-time televised address to the nation from the Oval Office — the first of his presidency. He will then travel Thursday to visit the nation’s southern border...

"Vexed by Democrats’ refusal to yield to his demand for $5.7 billion for wall funding, Trump increasingly views a national emergency declaration as a viable, if risky, way for him to build a portion of his long-promised barrier, according to senior administration officials. Although Trump has made 'no decision' about a declaration, Pence said, lawyers in the White House Counsel’s Office are working to determine the president’s options and prepare for any possible legal obstacles."

OPINIONS

Larry Summers: Recession likely in the next two years. The former Treasury secretary, writing in The Post: "The overall judgment of financial markets is that a recession is significantly more likely than not in the next two years. Real economic indicators for the world’s largest economies — China and the United States — also suggest cause for concern. Almost every Chinese indicator in the past few months has come in below expectations...

"Perhaps the U.S. economy will enjoy a soft landing: Jobs growth would slow toward long-run sustainable levels, and productivity growth would accelerate enough to allow continued gross domestic product growth of 2 percent and increased wage growth without accelerating inflation. But this would require both policy skill and great luck. Given that we are starting from very high debt levels and low unemployment, a recession is the more likely outcome.

DAYBOOK

COMING SOON: 

THE FUNNIES

— From The New Yorker's Barbara Smaller, circa 2012: 

BULL SESSION

‘Bohemian Rhapsody,’ Jeff Bridges steal the show at the Golden Globes

‘No question’: Ocasio-Cortez calls Trump a racist in ’60 Minutes’ interview

Newsom heckled during swearing-in ceremony