Uber CEO Dara Khosrowshahi says he expects Uber and Lyft will be easing off their price-slashing battle soon. Richard Drew/AP hide caption
For most companies, losing $1 billion in a quarter would be a big disappointment. But Uber's first report as a publicly traded company was actually better than it had warned investors to expect.
The ride-hailing and food-delivery giant brought in more than $3 billion in revenue in the first three months of 2019 — a 20% jump from the same quarter a year earlier.
Before going public earlier this month, Uber had told investors to be prepared for an even larger loss in the first quarter. Now, it's telling them it expects the price-cutting competition that has hurt its profits to ease up soon.
Uber has burned through money for years by spending heavily on growth — offering financial incentives to attract new riders and drivers, and taking on the costs of expanding into new markets around the world. So far, that growth has never translated into profits.
Uber's IPO did not go well. Despite pricing its shares relatively conservatively, at least compared with early expectations, the company saw its stock drop immediately, and it finished day one lower than it started. Since then, Uber shares have never sold at the value set for the initial offering.
Wall Street liked what it saw in Uber's first earnings report. Its stock was up more than 1% in early trading Friday.
Uber's earnings report shows the company continues to expand rapidly, especially in Uber Eats, its food delivery branch. In South America, however, the company saw revenue shrink as it faces intense competition from rival Didi.
In the U.S., meanwhile, Uber is facing off with its smaller competitor Lyft.
Around the world, competition in ride-hailing is driving down prices and contributing to Uber's losses. In the earnings call on Thursday, Uber CEO Dara Khosrowshahi said he expects Uber and Lyft, at least, will be easing off their price-slashing battle soon.
"The competition is going to be more healthy," he said. "It's going to be based on brand and product and technology, which we think is the right way to compete, versus throwing money at the problem."
He also acknowledged that Uber has faced headwinds in the U.S. due in part to the tremendous damage to the brand over the past few years — marked by sexual harassment allegations, reports of illegal business practices, data breaches and other scandals.
[unable to retrieve full-text content]
[unable to retrieve full-text content]
[unable to retrieve full-text content]
Wall Street Breakfast: Markets Shocked By Mexico Tariff Bombshell Seeking AlphaListen on the go! A daily podcast of Wall Street Breakfast will be available by 8:00 a.m. on Seeking Alpha, iTunes, Stitcher and Spotify (click the highlighted.
© Reuters. Traders work on the floor at the NYSE in New York
By Amy Caren Daniel
(Reuters) - U.S. stocks inched higher for the first time this week on Thursday, as President Donald Trump said trade talks with China were going well, offering a glimmer of hope to markets roiled by worries that a protracted dispute would slow global growth.
A senior Chinese diplomat said provoking trade disputes is "naked economic terrorism", even as Trump said Beijing wanted to make a deal with Washington.
The escalating dispute has weighed heavily on Wall Street this month, putting its main indexes on track for losses of at least 5% in May. The benchmark is now 5.8% away from its all-time high of 2,954.13 hit on May 1.
"We're seeing just a little bit of a relief to markets after the selling over the past couple of days, whether it morphs into something more than that it's hard to say," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago
"Markets are focused on trade talks, or lack there of. We're starting to see more and more signs that the economy is looking more recessionary that expansionary."
U.S. treasury yields fell on Thursday and hovered near 20-month lows as investors sought safety in government bonds. [US/]
The yield curve between three-month bills and 10-year notes remained inverted, with money markets pricing in roughly two U.S. rate cuts by the start of next year.
Interest-rate sensitive bank stocks fell 0.55%, while the broader financial sector declined 0.10%.
Technology stocks, among the worst performing S&P sectors this month, rose 0.60% and boosted markets.
The sector was helped by a 11.7% jump in Keysight Technologies after the electronic measurement equipment maker reported better-than-expected quarterly results and announced a $500 million share buyback plan.
Apple Inc (NASDAQ:), Microsoft Corp (NASDAQ:) and Intel Corp (NASDAQ:) also rose and offered support.
Also helping sentiment was data that confirmed domestic economic growth accelerated in the first quarter, but there were signs that the temporary boost from exports and inventory accumulation was already fading.
At 12:52 p.m. ET the was up 81.69 points, or 0.33%, at 25,208.10. The S&P 500 was up 9.62 points, or 0.35%, at 2,792.64 and the was up 31.00 points, or 0.41%, at 7,578.31.
The energy sector fell 0.85%, the most among the four major S&P sectors trading lower.
Among other stocks, Dollar General Corp (NYSE:) jumped 7.9% after the discount retailer's same-store sales and profit topped expectations.
Viacom Inc climbed 6.1% after report that CBS Corp (NYSE:) is preparing for merger talks with the media company. CBS rose 3.6%.
PVH Corp (NYSE:) plunged 14.2%, the most among S&P companies, after the Calvin Klein owner cut its annual profit forecast as it grapples with tariffs and slowing retail growth.
Advancing issues outnumbered decliners by a 1.51-to-1 ratio on the NYSE and by a 1.35-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and 23 new lows, while the Nasdaq recorded 22 new highs and 96 new lows.
Mark Zuckerberg, Facebook's CEO and chairman.Reuters
Mark Zuckerberg is heading for a showdown with investors on Thursday, as the Facebook boss faces a vote on whether he should remain as both CEO and chairman.
At Facebook's annual shareholder meeting in Silicon Valley, investors will vote on two proposals: to hire an independent chairman above Zuckerberg, and to rip up the firm's dual-class share structure.
The former idea, to oust Zuckerberg as chairman, was put forward by activist shareholder Trillium Asset Management, and the firm's senior vice president, Jonas Kron, will read out a message in support of his proposal during today's meeting.
With Zuckerberg in the room, Kron will make the case that Zuckerberg's enormous power has exacerbated Facebook's problems over the past two years, such as the Cambridge Analytica scandal and election meddling on the social network.
"We have watched with growing dismay as that list of controversial and damaging social impacts grew very long. And as rigorous reporting from the New York Times has shown us, having a unified chair and CEO severely limited the board's ability to provide the company the oversight it needed," he will tell Zuckerberg and the Facebook board, according to a statement sent to Business Insider.
"It is unwise to have so much power concentrated in one person," he will add, as he bids to drum up support from fellow investors. "Let us not miss this opportunity to make a simple, yet powerful change that would go a long way towards creating a successful future."
Facebook has always maintained that hiring an independent chairman would not be a good idea. "We do not believe that requiring the Chair to be independent will provide appreciably better direction and performance, and instead could cause inefficiency in board and management function and relations," it said in a filing last month.
The chance of Trillium's proposal becoming a reality is extremely slim, despite it being backed by investors that control around $3 billion of Facebook stock. A similar proposal in 2017 was popular among independent investors but was crushed because of Zuckerberg's voting power.
This is because of Facebook's dual-class share structure. Class B shares have 10 times the voting power of class A shares, and it just so happens that Zuckerberg owns more than 75% of class B stock. It means he has more than half of the voting power at Facebook.
Good morning Mr. Chairman, members of the board, fellow shareholders. My name is Jonas Kron and I am here on behalf of Trillium Asset Management and the Park Foundation to hereby move Item Number 6, seeking an independent board chair policy for Facebook.
This proposal has been co-filed by the New York City Comptroller, the Treasurers of Illinois, Rhode Island, Connecticut, and Oregon, and a multitude of smaller and faith based investors.
At its core this shareholder proposal is about the risk of concentrating too much power in one person – any person.
As proxy advisory firm Glass Lewis put it in its report supporting this shareholder proposal - "vesting a single person with both executive and board leadership concentrates too much responsibility in a single person and inhibits independent board oversight of executives …"
Facebook is incredibly powerful - with wide ranging and difficult to understand, let alone control, social impacts. Over the last two years we have watched with growing dismay as that list of controversial and damaging social impacts grew very long. And as rigorous reporting from the New York Times has shown us, having a unified Chair and CEO severely limited the board's ability to provide the company the oversight it needed.
It is these very facts about power and impact – responsibility and accountability - which highlight why a unified chair and CEO is such a misguided idea – it is unwise to have so much power concentrated in one person.
Which is why we should look to the examples of highly successful companies such as Alphabet, Apple, Autodesk, and Microsoft – to name just a few – which all have independent board chairs.
We recognize that Facebook has a lead independent director. And we acknowledge that the board has recently taken steps to articulate more clearly her powers and responsibilities. However, these recent changes are fundamentally insufficient to meet the task at hand because a lead independent director does not command the same authority as an independent board chair.
This question comes to shareholders at a critical moment. Facebook is embarking on a privacy pivot which leadership has described as requiring a completely new platform. At a time when there is little public trust in Facebook, it is navigating a regulatory landscape that is changing quickly. In this difficult and challenging environment it is important to stop and consider that the CEO position is the most demanding job in corporate America and the responsibilities of a Chairman of the Board are enormously time consuming. We need different people in these two distinctly different leadership positions.
Let us not miss this opportunity to make a simple, yet powerful change that would go a long way towards creating a successful future, not only for Facebook and its employees and its shareholders, but for individuals, families, and communities around the world.
Thank you for your time and attention – and for your support for an independent board chair.
© Reuters. Traders work on the floor at the NYSE in New York
By Amy Caren Daniel
(Reuters) - U.S. stocks rose for the first time this week on Thursday, as President Donald Trump said trade talks with China were going well, offering a glimmer of hope to markets roiled by worries that a protracted dispute would slow economic growth.
A senior Chinese diplomat said provoking trade disputes is "naked economic terrorism", even as Trump said Beijing wanted to make a deal with Washington.
The escalating dispute has weighed heavily on Wall Street this month, putting its main indexes on track for losses of more than 5% in May. The benchmark is now 5.9% away from its all-time high of 2,954.13 hit on May 1.
"The positivity in markets is very muted today, there are fractional gains," said Peter Kenny, founder of Kenny's Commentary LLC in New York.
"Uncertainty is still the primary driver on the trade front. We have increasingly seen the fear of uncertainty being priced into the market, and that is all about trade and the prospect of a slowdown."
Despite a tick up in U.S. treasury yields on Thursday, they still hovered near 20-month lows as investors sought safety in government bonds. [US/]
The yield curve between three-month bills and 10-year notes remained inverted, with money markets pricing in roughly two U.S. rate cuts by the start of next year.
Interest-rate sensitive bank stocks fell 0.54%, while the broader financial sector declined 0.24%.
Technology stocks, among the worst performing S&P sectors this month, rose 0.38% and boosted markets.
The sector was helped by a 9.6% jump in Keysight Technologies after the electronic measurement equipment maker reported better-than-expected quarterly results and announced a $500 million share buyback plan.
Apple Inc (NASDAQ:), Microsoft Corp (NASDAQ:) and Intel Corp (NASDAQ:) also rose and offered support.
Also helping sentiment was data that confirmed domestic economic growth accelerated in the first quarter, but there were signs that the temporary boost from exports and inventory accumulation was already fading.
At 11:10 a.m. ET the was up 6.11 points, or 0.02%, at 25,132.52. The S&P 500 was up 5.54 points, or 0.20%, at 2,788.56 and the was up 19.47 points, or 0.26%, at 7,566.78.
The energy sector fell 1.1%, the most among the four major S&P sectors trading lower.
Among other stocks, Dollar General Corp (NYSE:) jumped 6.8% after the discount retailer's same-store sales and profit topped expectations.
Viacom Inc climbed 4.8% after report that CBS Corp (NYSE:) is preparing for merger talks with the media company. CBS rose 2.7%.
PVH Corp (NYSE:) tumbled 14.3%, the most among S&P companies, after the Calvin Klein owner cut its annual profit forecast as it grapples with tariffs and slowing retail growth.
Advancing issues outnumbered decliners by a 1.45-to-1 ratio on the NYSE and by a 1.28-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and 13 new lows, while the Nasdaq recorded 18 new highs and 69 new lows.
© Reuters. Traders work on the floor at the NYSE in New York
By Amy Caren Daniel
(Reuters) - U.S. stocks rose for the first time this week on Thursday, as President Donald Trump said trade talks with China are doing well, offering a glimmer of hope to markets roiled by trade tensions.
A senior Chinese diplomat said that provoking trade disputes is "naked economic terrorism", even as Trump said Beijing wanted to make a deal with Washington.
The escalating trade war has weighed heavily on Wall Street, putting its main indexes on track for a monthly loss of more than 5% in May. The benchmark is now 5.7% away from its all-time high of 2954.13 hit on May 1.
"People are trying to figure out how much of the bad news is already priced in. The trade war looks like it might dampen growth but not enough to throw us into a recession," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
"There has been talk about the Fed possibly cutting rates and that is a little bit positive for the stock market."
Despite a tick up in U.S. treasury yields on Thursday, they were still at 20-month lows as investors sought safety in government bonds.
The yield curve between three-month bills and 10-year notes also remained inverted and money markets were pricing in roughly two U.S. rate cuts by the start of next year. [US/]
The technology sector, among the worst performing S&P sectors this month, rose 0.60%, and provided the biggest boost to markets.
The sector was helped by a 11% jump in shares of Keysight Technologies after the electronic measurement equipment maker's quarterly results topped estimates and the company announced a $500 million share buyback program.
Apple Inc (NASDAQ:), Microsoft Corp (NASDAQ:) and Intel Corp (NASDAQ:) rose between 0.3% and 1.3%, supporting the markets.
At 9:42 a.m. ET the was up 74.96 points, or 0.30%, at 25,201.37. The S&P 500 was up 12.02 points, or 0.43%, at 2,795.04 and the was up 32.96 points, or 0.44%, at 7,580.27.
Nine of the 11 major S&P sectors were trading higher, with only the energy and communication services sectors in the red.
Adding to the upbeat mood, the government confirmed domestic economic growth accelerated in the first quarter, but there are signs that the temporary boost from exports and inventory accumulation is already fading, and production at factories slowing.
Among other stocks, Citigroup Inc (NYSE:) rose 1.4% after Goldman Sachs (NYSE:) raised the bank's shares to "buy", as it expects the lender to achieve a higher return on equity in 2020.
Discount retailer Dollar General Corp (NYSE:) jumped 6.2% after the company reported quarterly same-store sales and profit above expectations.
PVH Corp (NYSE:) tumbled 12.1%, the most among S&P companies, after the Calvin Klein owner cut its annual profit forecast as it grapples with tariffs and slowing retail growth.
Advancing issues outnumbered decliners by a 3.25-to-1 ratio on the NYSE and by a 2.48-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and six new lows, while the Nasdaq recorded eight new highs and 26 new lows.
Ships are the latest mode of transportation to see electric upgrades as the maritime industry faces increased pressure to reduce greenhouse gases, writes Axios Expert Voices contributor Maggie Teliska.
The big picture: Passenger ferries are ideal for electric propulsion using current battery technology, which can reduce water and air pollution while providing a quiet, vibration-free trip. Short routes with frequent stops along populated shorelines offer ample opportunities to charge the battery packs.
Where it stands: Globally, there were 185 battery-powered vessels operating or scheduled for delivery in 2018, 58 of which were passenger ferries. Norway introduced the first all-electric ferry, named the MF Ampere, in 2015 to shuttle passengers between villages in the fjords.
What's new: Maid of the Mist plans to launch 2 all-electric, zero-emission boats in September on the U.S. side of Niagara Falls — the first domestically built all-electric boats used for tourists in the U.S.
Teliska is a technical specialist at Caldwell Intellectual Property Law and CTO of Regent Power. She is also a member of GLG, a platform connecting businesses with industry experts.
[unable to retrieve full-text content]
John Draper pours glyphosate into the tank of his sprayer at the University of Maryland's Wye Research and Education Center. Dan Charles/NPR hide caption
John Draper and I are sitting in the cab of a tractor on the research farm he manages for the University of Maryland, alongside the Chesapeake Bay. Behind us, there's a sprayer.
"So, away we go!" Draper says. He pushes a button, and we start to move. A fine mist emerges from nozzles on the arms of the sprayer.
We're spraying glyphosate, killing off this field's soil-building "cover crop" of rye before planting soybeans.
Farmers have been using this chemical, often under the trade name Roundup, for about four decades now.
But now it's under fierce attack, accused of causing cancer. In three civil cases so far, U.S. juries have ordered Roundup's inventor, Monsanto, now owned by Bayer, to pay enormous damages to cancer survivors. Thousands more lawsuits have been filed.
For this chemical, and for Monsanto, it's a stunning change in fortunes.
Farmers felt that they could spray glyphosate with a clear conscience. It doesn't persist in the environment as much as, say, DDT did. It doesn't build up in groundwater like another widely used herbicide, atrazine. And it's certainly less toxic than some alternatives.
"If we were spraying Gramoxone [the trade name for paraquat, another herbicide], even for you to be standing next to the sprayer, you'd have to have a respirator on. I'd have to wear a respirator even in the tractor, spraying," says Draper.
Monsanto started selling Roundup in 1974. For 20 years, it didn't attract much attention. That was Act 1 of the glyphosate drama: the quiet years.
Act 2 began in the late 1990s.
In 1996, Monsanto started selling genetically modified crops, or GMOs. They were modified so they could tolerate glyphosate. This meant that farmers could now spray this chemical right over their "Roundup Ready" soybeans, corn and cotton, and the crops would be fine but the weeds would all die.
It was a farming revolution built on glyphosate. Monsanto quickly became the world's biggest seed company. And farmers started spraying a lot more Roundup. Sales of the chemical increased more than ten-fold.
It all happened so fast that it scared a lot of people. There were anti-GMO protests around the world, and glyphosate came under increasing scrutiny.
A pedestrian walks past anti-glyphosate art in Popayán, Colombia. Glyphosate has been deployed in Colombia to wipe out coca and poppy crops. Dan Charles/NPR hide caption
The International Agency for Research on Cancer, part of the World Health Organization, decided to carry out a new assessment of glyphosate's risks.
On March 20, 2015, IARC announced its conclusion: Glyphosate is "probably carcinogenic to humans."
That conclusion rests on three kinds of studies. First, IARC found "strong evidence" that glyphosate can damage DNA in cells. This kind of damage, inducing mutations, is the first step in causing cancer. Second, there are studies showing that when mice ate glyphosate, they got more tumors. Kate Guyton, a senior toxicologist at IARC, told reporters at a news conference that "these two studies gave sufficient evidence of cancer in animals."
Finally, IARC says there's "limited evidence" that people exposed to glyphosate had higher rates of a particular kind of cancer — non-Hodgkin lymphoma.
Guyton has been studying the causes of cancer for decades. Nothing she has ever done, she says, provoked as much of a reaction as the glyphosate announcement. "The Internet kind of exploded," she says.
Anti-GMO groups felt vindicated. Monsanto's top executives were furious and launched a public relations campaign attacking IARC and its report.
And in the small town of Orange, Va., a personal injury lawyer named Michael Miller started lining up clients — people with non-Hodgkin lymphoma who'd used Roundup. "I decided that these people needed a voice in the courtroom," he says.
The scientific picture got more complicated, though. Other government agencies, including the U.S. Environmental Protection Agency and the European Food Safety Authority, took a fresh look at glyphosate. And they concluded that it probably is not giving people cancer.
David Eastmond, a toxicologist from the University of California, Riverside, helped conduct one of these glyphosate reviews for another part of the World Health Organization, the Joint FAO/WHO Meeting on Pesticide Residues.
"From my reading of things, if glyphosate causes cancer, it's a pretty weak carcinogen, which means that you're going to need pretty high doses in order to cause it," he says.
Eastmond says that there are several reasons for this apparent disagreement between IARC and the other agencies.
First, IARC just looks at whether glyphosate can cause cancer; regulators, on the other hand, have to decide whether it actually will, considering how much of it people are exposed to.
Second — and most important, according to Eastmond — different agencies considered different evidence. Eastmond's committee and regulatory agencies like the EPA considered a large number of studies that aren't publicly available because Monsanto paid for them and submitted them to the agencies. "I have never seen a chemical with as many animal cancer studies as glyphosate," Eastmond says.
IARC, however, didn't look at most of this research because it accepts only studies that are publicly available. This allows any other scientist to see exactly what IARC's conclusions are based on.
Eastmond, for his part, thinks company-financed studies are credible and valuable, despite the potential conflict of interest for companies carrying out those studies. The labs, he says, have to follow strict guidelines.
Finally, scientists sometimes look at the same data and disagree about what it means. Eastmond says that he and Guyton had "animated discussions" about some of the data. "We just evaluated the evidence differently, but, you know, these are honest disagreements [among] people who I think are well-meaning," Eastmond says.
Then Act 3 arrived. Glyphosate went to court. There were three civil trials in or near San Francisco.
Lawyers for Bayer, which now owns Monsanto, repeatedly reminded jurors that regulatory agencies had concluded that glyphosate is not a cancer risk.
Lawyers for the cancer victims, though, suggested that those same regulators couldn't be trusted because they'd been manipulated or fooled by Monsanto.
Miller and his legal team showed the juries a whole collection of internal Monsanto emails. In one, company executives described phone calls with an official at the EPA. As Miller describes it, the official said, "I don't need to see any more studies. I'm going to declare Roundup safe, and I'm going to stop another agency from looking at it."
Another Monsanto executive discussed ghostwriting papers on glyphosate's safety that scientists could publish under their own names.
"I think the jury was rightfully offended," Miller says.
All three trials ended with resounding verdicts in favor of the cancer victims. The juries ordered Bayer to pay huge punitive damages. In the most recent case, the damages totaled $2 billion.
Bayer is appealing these verdicts — and the damages probably will be reduced. But more lawsuits are waiting. The total value of Bayer's stock has fallen $40 billion since the first verdict was announced.
Alexandra Lahav, a professor at the University of Connecticut School of Law, says that one lesson of this case so far is that attempts to get favorable decisions from regulators can backfire in court.
"They then open themselves up for the jury to say, 'Wait a minute — you're trying to convince the regulator not to regulate you, and now you want me to believe that the regulator is completely objective,' " Lahav says.
When regulators are seen as weak or ineffectual watchdogs, she says, their seal of approval also carries less weight with the public — and with juries.
The next glyphosate trial is set for August in St. Louis.
Ray Dalio, the co-founder of the largest hedge fund in the world, warned Wednesday that a move by the Chinese to restrict the production and export of rare earth metals to the U.S. would constitute a “major escalation” of the protracted trade war between the globe’s two largest economies. In a blog post on LinkedIn, Bridgewater Associates’ Dalio said that such metals are essential to many American technology companies working at the cutting edge of innovation. “Refined rare metals are a critical import that American companies don’t produce and need to get from China to produce many needed products in the U.S. such as ... (full story)
You know the moment in a horror movie when the characters are going about their business as normal and nothing bad has happened to them yet, but it feels as if there are ominous signs everywhere that only you, the viewer, realize?
That’s what watching global financial markets the last couple of weeks has felt like.
In a lot of ways, nothing looks particularly wrong. As of noon Wednesday, the S&P 500 was down about 1.2 percent, falling sharply for the second consecutive session, but over all is down only about 6 percent from its early May high. The unemployment rate is at a five-decade low. With major companies nearly done releasing their first-quarter results, 76 percent had results above expectations.
But along the way, global bond prices have soared, driving interest rates down sharply. Ten-year Treasury bonds are yielding only 2.22 percent as of midday Wednesday, down a full percentage point since November 2018. The outlook for inflation in the years ahead is falling as well, as are the prices of oil and other commodities.
Most significantly, the fall in longer-term bond yields has not been matched by a fall in shorter-term rates. For example, a 30-day Treasury bill is currently yielding 2.35 percent — meaning you can earn more on your money tying it up for a month risk-free than you can tying it up for a full decade.
This is not normal. It is called an inverted yield curve, and historically it has been viewed as a sign of a recession in the offing. At a minimum, it indicates that bond investors believe the Federal Reserve will soon need to cut interest rates — in effect, that they overshot with their four rate increases last year.
And there is a soft underbelly to some of the good economic data of late. Orders for capital goods like business equipment fell 0.9 percent in April, suggesting companies may not be in an expansionary mood. The Institute for Supply Management’s index of activity at manufacturing companies fell sharply in the most recent reading, though it remained in expansion territory.
The financial markets don’t always tell a tidy little story about what is happening, but here’s a theory about reconciling the apparent calm in the economy with the many worrying signs.
The breakdown in trade negotiations with China and the imposition of tariffs on Chinese goods are part of the story, but only a part.
Businesses have weathered escalating tariffs for two years now, and while tariffs can be costly, they do not need to wreck the economy. After all, prices for products fluctuate for all sorts of reasons, and market economies are pretty good at adjusting.
But what has happened in the last few weeks involves the specter of a longer, more painful form of damage. There have been signs that the world’s two largest economies might not simply have tensions and a few tariffs, but could be heading toward a broader split.
In a sense, economists may have been analyzing the trade war too narrowly, merely by calculating the cost of tariffs and where those costs may show up.
The potential long-lasting consequences are harder to model.
What if American regulators try to cut off Chinese companies’ access to Wall Street and its vast pool of financing, as some China hawks are advocating? What if China cuts off exports of the “rare earths” materials that are crucial to advanced manufacturing in the United States? Will the Trump administration’s ban of the technology giant Huawei be the first step toward a bifurcation of today’s global internet into American and Chinese spheres?
Or it could even be this simple: If there is a slowdown in the Chinese economy that causes its demand for oil and other commodities to fall, American makers of those commodities could face pain over and above that caused by tariffs directly. Falling global commodity prices would pull the world economy even further into its deflationary rut.
That last story is particularly consistent with the swings in markets this month. Because tariffs tend to increase consumer prices, you might expect the escalating trade war to cause investors’ expectations for inflation to rise.
Yet the gap in prices between bonds that are indexed to inflation and those that are not suggests that investors envision annual inflation of 1.6 percent over the next five years, down from 1.8 percent at the start of May.
There are further signs of trouble from around the world: threats of conflict with Iran, missile tests in North Korea. European politics is a mess.
It can be a mistake to assume that financial markets are responding to the latest geopolitical headlines. But put it all together, and there seems less of a mystery why bond investors are in a more pessimistic mood than the recent economic and earnings data might suggest makes sense.
It is premature to assume that a recession or a geopolitical crisis is imminent. You could imagine that U.S.-China relations will enter another period of détente, with the Federal Reserve taking a precautionary interest rate cut, and that the economy and markets will once again be off to the races.
In other words, we don’t know yet if this is a horror movie or a comedy, but in the months ahead it seems we’ll find out.
Huawei is stepping up its fight against American bans. The tech giant has motioned for a summary judgment in its lawsuit to invalidate Section 889 of the 2019 National Defense Authorization Act, arguing that it violates the "Bill of Attainder, Due Process and Vesting" clauses of the US Constitution. The law explicitly bans Huawei by name despite "no evidence" of a security risk, Huawei's Song Liuping said, and bans third-party contractors who buy from Huawei even when there's no link to the US government.
The company also preemptively tried to dismiss claims that there are facts up for dispute. This is a simple "matter of law," according to lead counsel Glen Nager.
A hearing on the motion is due September 19th.
This won't get Huawei off the Commerce Department's Entities List, which forced US companies to stop doing business with the Chinese firm. It would alleviate some of the pressure on the company, though, and would theoretically provide a route back to doing more business in the US if it's ever removed from the Entities List. It could also push the US to provide evidence (if there is any) to support the measure. If nothing else, it signals that Huawei won't take bans lying down.
Andy Purdy, chief security officer at Huawei Technologies USA, signaled on CNBC Wednesday the Chinese telecom giant may be open to taking steps to address U.S. national security concerns.
"In different countries in the world, we negotiate with respective governments on what kind of assurance framework they need," Purty told "Squawk Box." Some measures, he said, might include requirements around selling to government or to critical infrastructure projects. While saying he cannot prejudge any possible conditions, Purdy said he would be "astounded if we weren't open to those kinds of risk mitigation measures. "
Purdy's appearance, along with Huawei outside counsel Glen Nager of Jones Day, comes as the China-based company looks to expedite its March lawsuit against the U.S., which alleges that a law banning U.S. government agencies from buying its equipment is unconstitutional. Huawei is seeking a so-called summary judgment in hopes of avoiding a full-blown trial.
Wednesday's comments from Purdy mirror ones that he made about two weeks ago, in which he said a risk-mitigation process for Huawei equipment, like those used in Europe, could have been simple.
The new Huawei filing stems from President Donald Trump's signing last year of a new U.S. defense act that strengthens the Committee on Foreign Investment. However, with the U.S. most recently stepping up pressure against Huawei — as part of trade and technology tensions with China — Trump earlier this month effectively blacklisted Huawei from doing business in the U.S.
Purdy, who formerly served as a top-ranking cybersecurity official for Homeland Security, said U.S. officials have not been "willing to talk" to Huawei. "The geopolitical context between the U.S. and China is why we're in this situation."
The Huawei attorney Nager said the Trump administration needs to "ramp down the rhetoric," adding that "the U.S. is worried more about the country China than the company Huawei."
Responding to a question about this weekend's Wall Street Journal report with the headline "Huawei's Yearslong Rise Is Littered With Accusations of Theft and Dubious Ethics," Purdy told CNBC, "I don't forgive acts that have happened in the past," he said. "Despite those, our allies have decided to push back on tremendous pressure from the U.S. government because they believe the national security threats can be addressed."
Huawei has maintained that it adheres to intellectual property rights, which along with national security is at the heart of the U.S. concerns about the company and about business practices at-large in China.
US president Donald Trump has made Huawei the biggest story in tech right now by banning it from doing business with US companies. Huawei, China’s tech champion, has lost access to Google’s Android and Intel’s chips, and it’s even seen other international partners like ARM and Panasonic bowing to American influence and discontinuing trade. Having previously been on track to becoming the world’s biggest smartphone maker, Huawei is now in such dire straits that the best metaphor its founder could come up with to allay fears is that the company is like a plane with a hole in its side: not doing great, but still up in the air.
Bludgeoning Huawei with the ban hammer is, by Trump’s own admission, a negotiating tactic to focus China’s attention on American discontent with the existing trade relationship between the two countries. It lands atop a pile of punitive 25 percent tariffs he’s imposed on many Chinese imports to the US, and a promised further round of such tariffs on practically every Chinese export imaginable.
Two expert China observers tell The Verge that China very much cares about these restrictions on its most important overseas market, and it has every incentive to respond, whether to alleviate the sanctions or as a show of its own economic strength. But both agree that China has few, if any, good options available.
Veteran diplomat Hosuk Lee-Makiyama asks pointedly, “What does China have left to retaliate with?” It’s already imposed tariffs on the few classes of goods for which it wants to protect its internal market, and it’s excluded American internet giants like Google and Facebook, so what can China realistically threaten to do as a counter measure? Some observers, such as Ben Thompson in Stratechery, note that “China took the first shots” in the present trade war when it threw out many US tech firms, and it is now the US who is finally responding.
I'm of two minds.
On one hand, I am quite concerned about the direction the US-China tech not-so-cold war is headed.
On the other hand, after having to deal with the Great Firewall for a decade.....
Part of me just wants to say...
Cry me a fucking river, China. pic.twitter.com/CeQ0PZz6jn
— Elliott Zaagman (@ElliottZaagman) May 22, 2019
Lowy Institute’s Elliott Zaagman has spent the past 10 years living in and observing China, and he argues that the country’s economic prosperity is more brittle than it first appears. China’s “already at a point where growth rate is not an output, it’s an input,” meaning the government sets the goal it wants to hit each quarter and banks lend to hit that number. Beijing has done more monetary expansion, he says, than the US Fed, the Bank of Japan, and the EU combined. This has spawned a number of toxic asset bubbles — such as in housing, which has had trickle-down consequences of people taking on debt backed by overpriced real estate. Talking to him and Lee-Makiyama, you get the sense that China’s economy is closer to a pyramid scheme than a truly thriving and flourishing giant.
Retaliation is particularly risky because China’s economy relies on ever increasing trade with the world, as evidenced by the massive Belt and Road Initiative to develop land and sea routes for faster transport of goods. And Huawei, though a privately held entity, has been very helpful in procuring high-value overseas business with its lead in network infrastructure, 5G equipment, and, most recently, premium smartphones. Lee-Makiyama notes that because the country lacks a social safety net, it cannot afford to ever take its foot off the gas, which is what the Huawei setback inevitably represents. Economists, he says, have long held 6.5 percent economic growth as the threshold below which China can’t dip if it’s to sustain its growing debt, and China reported 6.4 percent growth in the first quarter of 2019, before Trump’s harshest tariffs had taken effect.
It’s in this context that we must look at China’s apparently formidable arsenal of weapons it could deploy against the US.
There are also more sophisticated kinds of financial warfare. China holds a trillion dollars of US debt, which it could dump on global markets and thus trigger an interest rate spike for the US economy. The Washington Post’s Robert J. Samuelson explains the mechanics of this succinctly, however he argues that China would be doing almost as much harm to itself in the process. A slowdown in the US economy would lead to even less appetite for Chinese exports, the US dollar might also go down in value and make Chinese goods less appealing, and whatever US treasuries China is left with would also be worth less. This illustrates the inherent symbiosis between Chinese production and American consumption, which have together formed the backbone of the global economy over the past 20 years.
The most threatening retort since Huawei was turned into a trade pawn by Trump has been a visit by president Xi Jinping to a rare earths facility. This was a wordless reminder of China’s dominance in collecting and processing the rare earth minerals essential to every smartphone, laptop, hybrid car, and practically anything more advanced than a gas oven. The CEOs of two US headphone manufacturers tell The Verge that China is the only place to buy the neodymium magnets required for their products: one said China is the sole source, the other said it controls 95 percent of the market. If you struggled to wait a few weeks for those sweet new Powerbeats Pro to go on sale, try waiting months and months for an alternative source of magnets.
And yet, as my colleague James Vincent has already set out, rare earths are not the secret weapon China imagines them to be. They’re not all that rare, the response to Beijing hoarding its supply would be production becoming economically viable and ramping up elsewhere, and the ultimate outcome would be fewer jobs and fewer exports for China. Lee-Makiyama sees this as an untenable scenario and points to China’s ill-fated attempts to use rare earths as a trade cudgel in its dealings with Japan and the US in the past.
Finally, and most obviously, the Chinese government could just do the tit-for-tat response of imposing sanctions on American businesses operating within its borders. Even with some older-model iPhone assembly in India, the vast majority of Apple’s smartphone business is built on Chinese land. Chipmakers are even more dependent, as an analysis from HSBC finds that Apple compatriot Qualcomm has 65 percent of its revenue vulnerable to disruption in trade with China. Other US tech firms with similar exposure include Broadcom at 54 percent, Micron at 51 percent, and AMD, Intel, and Texas Instruments all pinning at least a quarter of their revenues on continuing trade with China.
US consumers can also be hit through impositions on brick-and-mortar retailers. Chinese imports account for 26 percent of Walmart’s merchandise, which is on the low end compared to a more typical number like Target’s 34 percent, according to UBS. Additional research by UBS says the Trump administration’s tariffs imposed on Chinese imports “could put $40 billion of sales and 12,000 stores at risk.” The American Apparel & Footwear Association calls the next round of tariffs “a self-inflicted wound that will be catastrophic for the nation’s economy.” If tariffs are catastrophic, what would a total ban from China look like? This is arguably the most effective weapon Beijing could wield in its negotiations with Washington, but the corresponding hit on Chinese trade would be every bit as disastrous.
In Lee-Makiyama’s estimation, no scenario that involves China cutting off or constricting business with the outside world will be palatable to the country economically. Even with its rapidly growing national consumer market, China is still in need of more consumers for its goods and services. And with Apple and its compatriots like Nike, General Motors, and Walmart employing millions of Chinese workers, Trump has the leverage he needs to play hardball. That situation won’t last long, the diplomat warns, and now might prove to be the last good chance for the US to lean on the mutual dependency it has with China. If the trade relationship remains as it is, China will eventually grow its way to be colossal both as producer and consumer, and then American influence would be null.
For the US, what’s at risk are company revenues and profits. The country’s broader economy may suffer, but Lee-Makiyama says few people would notice if the GDP growth rate dipped from 3 to 2 percent. The same contraction for China’s economy, he contends and Zaagman agrees, would be disastrous. This asymmetry is at the heart of why the Trump administration can afford to be self-destructive in its tariff regime while China cannot indulge in similar costs to score trade negotiation points.
:format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/15986658/huawei_p30pro_vladsavov19_14.jpg)
The Chinese government was “definitely caught off guard” by the brusqueness of Trump’s actions, says Zaagman, which was “not anticipated at all.” That might explain why Beijing didn’t make fuller or better contingency plans for a situation like today. Then again, Xi might find consolation in the fact that the same surprise must also be reverberating inside the offices of US tech giants, as Asia economic observer Tony Nash, formerly of the Economist Intelligence Group, questions why American companies hadn’t diversified their manufacturing sooner. Their lack of preparedness may give China some reassurance that hostilities won’t escalate much beyond their current point without China firing back.
Without having a clear and coherent plan for its reaction, which neither Lee-Mikayama nor Zaagman believe Beijing is even close to right now, the best strategy for China is to do nothing material and maintain a “strong and silent” posture — which is exactly what the country is doing, commenting only to say that it “won’t flinch.”
The damage, “the stuff that saps one percent off GDP growth every year,” says Zaagman, has already been done. Silicon Valley investors are now looking for startups with reduced China exposure; big US tech manufacturers are exploring Vietnam, Mexico, and other potential production outlets; and China has found its prejudices that it can’t trust the US confirmed. Now that Trump has pulled the big red Huawei lever, China is wise to avoid hurriedly mirroring the move. Then again, it’s not like it has much choice.
Check out the companies making headlines before the bell:
Dick's Sporting Goods — The sporting goods retailer beat estimates by 4 cents a share, with adjusted quarterly profit of 62 cents per share. Revenue beat forecasts as well. Comparable-store sales were flat, better than the forecast of a 1.3% decline by analysts polled by Refinitiv. Dick's also raised its full-year outlook.
Abercrombie & Fitch — The apparel seller lost 29 cents per share for its latest quarter, smaller than the 43 cents a share loss that analysts were anticipating. Revenue topped estimates as well, although a comparable-store sales increase of 1% fell slightly short of the 1.3% consensus estimate.
Capri Holdings — The company formerly known as Michael Kors reported adjusted quarterly profit of 63 cents per share, beating estimates by 2 cents a share. The luxury goods retailer's revenue also came in above forecasts, helped by strength at its Versace and Jimmy Choo brands. Capri gave a weaker-than-expected current-quarter forecast, however, as it spends more on marketing and new store openings.
Canada Goose — The outerwear maker reported adjusted quarterly profit of 9 cents per share (Canadian), beating the consensus estimate of 5 cents a share. Revenue was below estimates, however, and Canada Goose also gave a weaker-than-expected outlook.
Workday — Workday earned an adjusted 43 cents per share for its latest quarter, beating estimates by 2 cents a share. The maker of human resources software's revenue come in above forecasts, as it signed up more business subscribers.
Boeing — The 737 Max jet may not return to service until August, according to the head of the International Air Transport Association. Alexandre de Juniac told reports that the group plans to organize a summit of regulators and airlines in five to seven weeks to discuss what may be needed to allow the 737 Max to fly again.
T-Mobile, Sprint — The two wireless carriers could sell the prepaid wireless brand Boost Mobile for up to $3 billion, according to interested bidders who spoke to Reuters. The sale of Boost is among the concessions offered to win Federal Communications Commission approval of the deal. Boost Mobile founder Peter Adderton, who is interested in buying back boost, will be a guest on CNBC's Squawk Alley today at 11 a.m. ET.
Bed Bath & Beyond — The housewares retailer has added four new independent directors to its board, in a settlement with an investor group consisting of Legion Partners Asset Management, Macellum Advisors, and Ancora Advisors. The group said it was pleased with the move.
Morningstar — The financial information company announced the acquisition of credit ratings agency DBRS for $669 million.
Devon Energy — The energy producer announced the sale of its Canada business to Canadian Natural Resources for $2.8 billion. Devon plans to use the proceeds to reduce debt.
Uber Technologies — Uber CEO Dara Khosrowshahi told the German newspaper Handelsblatt that the ride-hailing company will not achieve profitability in the next year or two, but that it will come.
Toyota — The automaker is considering an investment of about $550 million in China-based ride-hailing company Didi Chuxing, according to Japan's Nikkei business daily.
Heico — Heico reported quarterly profit of 60 cents per share, 11 cents a share above estimates. Revenue came in well above forecasts and the aircraft parts maker raised its financial forecast for the year.
General Mills — The food producer's stock was downgraded to "sell" from "neutral" at Goldman Sachs, which said that its December prediction that short term strength might be followed mounting deceleration is now playing out.
Amazon, Facebook, Trade Desk, Twitter — In a report on internet advertising, Pivotal Research said that it would pay to be selective in this area, and issued "buy" ratings on these four stocks because of their leadership positions, among other factors. It rates Alphabet, Snap, and Pinterest at "hold."
