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Japan's economy grew more than expected in the second quarter, but trade risks loom

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Japan’s economy grew more than expected in the second quarter, helped by improved household spending and rebounding from a contraction in the previous quarter, but global trade tensions loom as major risks to the export and investment outlook.

The economy grew 1.9 percent on an annualized basis in April-June, more than the median estimate for a 1.4 percent annualized increase. That follows a revised 0.9 percent annualized contraction in the previous quarter, which put an end to the best run of growth since the 1980s bubble economy.

The economy is expected to continue growing due to consumer spending and business investment, but there is growing unease about the pace of future growth, economists say, with the rift between Japan and the United States presenting potential headwinds for growth.

Following a meeting with U.S. Trade Representative Robert Lighthizer on Thursday, Japanese Economy Minister Toshimitsu Motegi appeared to maintain Tokyo’s position that it preferred multilateral free-trade agreements over bilateral ones, which has been a point of contention with Washington.

Compared with the previous quarter, gross domestic product rose 0.5 percent, more than the median estimate for a 0.3 percent increase and after a 0.2 percent contraction in January-March.

Private consumption, which accounts for about 60 percent of GDP, was the biggest contributor to growth in April-June, rising 0.7 percent. That was more that the median estimate for a 0.2 percent increase and marked a rebound from a revised 0.2 percent fall in the first quarter.

Capital spending, the second-biggest contributor to growth, rose 1.3 percent, the biggest increase since October-December 2016. That was above the median estimate for a 0.6 percent increase.

However, external demand — or exports minus imports — subtracted 0.1 percentage point from growth, missing expectations for a 0.1 percentage point contribution.

The United States has pressured Japan for a bi-lateral free-trade agreement as a way to lower the U.S. trade deficit.

Japan has repeatedly said it prefers multilateral trade negotiations, which puts it at loggerheads with the United States.

U.S. President Donald Trump is trying to re-negotiate the U.S. trade relationship with other countries to curb practices which he says are unfair to U.S. companies and workers.

This has led to an increase in tensions between the United States and China as the world’s two largest economies slap retaliatory tariffs on each other.

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Global Slowdown Looks More Likely in Trade Turmoil: Economy This Week

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  1. Global Slowdown Looks More Likely in Trade Turmoil: Economy This Week  Bloomberg
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Fed's Powell still has a chance to save the economy before it's too late, Cramer says

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With a month left until the Federal Reserve’s next widely expected interest rate hike, Fed Chair Jerome Powell is facing a critical juncture that could determine the trajectory of the U.S. economy, CNBC’s Jim Cramer said Thursday.

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After hearing Powell’s remarks in a Wednesday interview with Dallas Fed President Robert Kaplan, Cramer felt that for the first time, Powell was growing cautious about the pace at which the Fed is raising rates. The central bank has said it plans to raise rates once more in December and three times in 2019.

In a question-and-answer session during the interview in Dallas, Powell acknowledged that the pace of global economic growth was slowing, but said it was “not a terrible slowdown.” Earlier this year, Powell said the Fed was “a long way” from neutral interest rates, signaling more hikes to come.

“Kaplan’s questions allowed Powell to walk back his sadly intemperate comments from October, comments that seemed to be almost blithely oblivious to some of the more worrisome data out there,” Cramer reflected on “Mad Money.” “After all, there are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here.”

And after last night, it became clear that “Powell gets it, too,” Cramer said. The central bank chief is realizing that “there’s another side” to the U.S. economy that is splintering under the dual pressures of higher rates and higher tariffs, he said.

“Is it too late? Yes, if we get four more hikes. Absolutely. No if we only get one and we wait,” the “Mad Money” host said. “Powell knows now that normalizing interest rates isn’t the goal — no one knows what normal is these days anyway.”

Instead, Powell has realized his job is to taper the “end-of-cycle talk” that has been filtering through the stock market and the broader economy and that many see as being tied to his rate hikes and the president’s tariffs, Cramer said.

“We know Powell’s now concerned that we actually could be at the end of the economic expansion. That’s a soft reversal of his earlier position from just one month ago, when he was so wedded to the explosive-growth conceit that he talked about overshooting with rate hikes to stamp out inflation,” the “Mad Money” host said. “The guy’s clearly paying attention to the data now. You know what? That’s all you can ask for.”

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Cramer says CEOs are telling him off the record the economy has quickly cooled

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Company leaders across industries are telling Jim Cramer — off the record — that they’re worried about a slowdown in the U.S. economy, Cramer said Thursday on CNBC.

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“So many CEOs have told me about how quickly things have cooled,” the “Mad Money” host said. “So many of them are baffled that we could find ourselves in this late-cycle dilemma that wasn’t supposed to occur so soon.”

Cramer has been warning investors for weeks about a manmade slowdown in the U.S. economy, fueled by the two-pronged pressures of the Federal Reserve’s interest rate hikes and the Trump administration’s tariffs. Now, high-profile CEOs are worried about growth slowing so drastically that it could actually hurt the economy, he said.

“There are degrees of slowdowns that, nonetheless, can cause an awful lot of havoc and cost a lot of jobs, and that’s what we’re on the verge of here,” he said. “That’s what the markets are saying. That’s what the CEOs are worried about offline.”

The situation reminded Cramer of when, on the cusp of the 2008 financial crisis, his corporate sources confided in him that the Fed “seemed to be out of touch … with what was happening” on Wall Street, he said. That led to his now-famous “They know nothing!” rant blasting the Fed for its lack of diligence.

“I was right,” he said. “I did my best and, at that time, I made a resolution. If I thought we would ever get back into one of these situations again, I promised myself I’d be vocal about what could go wrong, even if I knew it wouldn’t be as serious as the Great Recession.”

Now, with market commentators warning about the U.S. economy being “late” in its cycle, meaning that another recession could be on the horizon, Cramer’s getting vocal.

Weakness in Europe and Asia’s economies isn’t helping, he said, pegging the respective slowdowns to Brexit pressures and instability in the Italian government and China undergoing a mass slowdown tied to President Donald Trump’s tariffs.

If the Fed and Trump stay the course on their policies, the weakness will feed into the stock market as it did on Thursday, the “Mad Money” host warned. The action in shares of Walmart, Home Depot and Macy’s told the story, he said: all three companies recently reported strong quarters, but subsequently saw their stocks plummet on economic fears.

“This end-of-cycle logic raises its head everywhere,” Cramer said. “Everything was good, so good that it can’t ever be better because we’re at the end of the cycle. ‘Late-cycle.’ It’s become almost circular reasoning. The stock can’t go higher because it’s the end of the cycle and it’s the end of the cycle because the stock’s down.”

That, combined with the chief executives’ warnings, told Cramer that stocks can’t possibly be safe while the bearish narrative about debilitating economic weakness reigns supreme.

“If the Fed changes course and says ‘No more rate hikes … next year unless the data gets more positive,’ or if President Trump gets a trade deal with China or even does this kind of truce, then the end-of-cycle proponents may have to change their tune and the market can rocket higher,” he said. “Otherwise, though, rallies like today are going to be used to re-position portfolios because the bears have the late-cycle microphone and they just will not let go.”

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

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