Wednesday Morning Reads
- China’s Economy Surges
- Dubai Loan Standoff
- Global Banks Warn of Market Chaos
- Potential Priorities for Wall Street
- Elon Musk Loves China
- Air Cargo Construction Is Booming
- Apple Invests Millions
- Just Take the Money
- Why People Won’t Change Their Mind
"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," reads a (now suspended) tweet from President Trump from March 2019. While there are a whole lot of metrics to measure the objective, nearly three years into the battle with China, who's up and who's down in the relationship?
Before the dispute began, 23% of all American imports came from China, roughly as much as neighboring Canada and Mexico combined. U.S. goods trade deficit with China reached a record $419.2B in 2018, and while that shrunk to $345M the next year (roughly the same level as 2016), the overall trade deficit did not. Unilateral tariffs on China diverted trade flows to other countries, boosting U.S. imports from Vietnam, Malaysia, Taiwan and even Mexico.
Economists have also found Chinese exporters generally didn't lower prices to keep their goods competitive, meaning tariff duties were mostly paid by U.S. companies and consumers, and for China, it mainly led to a loss in export value. Beijing also made an ambitious vow to import $172B worth of U.S. goods in specific categories in 2020, but through the end of November it had bought just 51% cent of that goal, in part due to the slump in energy prices and trouble with Boeing's planes.
Moving jobs back home? Not really, but it's hard to measure. U.S. direct investment into China increased slightly from $12.9B in 2016 to $13.3B in 2019, according to the Rhodium Group, and more than three quarters of 200+ U.S. manufacturers in and around Shanghai surveyed in September said they didn't intend to move production out of China. While retaliatory actions have also weighed on U.S. farm purchases, Chinese companies did pay a record $7.9B in intellectual property payments to the U.S. in 2019, up from $6.6B in 2016, and its courts imposed some record-breaking fines on IP infringement.
Recent quote from China's President Xi: "The world is undergoing profound changes unseen in a century, but time and the situation are in our favor... This is where our determination and confidence are coming from."
Outlook: President-elect Biden will have to decide whether to keep up the trade war. In a recent interview, he said he would review the Phase One deal and wouldn't remove the tariffs immediately, but the conflict is quickly escalating. Sanctions and export restrictions imposed on Chinese-owned companies seem to be leading to a big conflict over technology, while getting tougher with Beijing on human rights abuses in Xinjiang and concerns over Hong Kong will make for a difficult balancing act. (18 comments)
Anyone flying into the U.S. will soon need to show proof of a negative test for COVID-19, according to a new requirement from the CDC, which expands on a similar one announced late last month for passengers coming from the U.K. The new order takes effect from Jan. 26 to give airlines and travelers time to comply.
How will it work? U.S. citizens, as well as foreign travelers, will have to get a COVID-19 test within three days of their flight and provide written proof of the results to the airline. Passengers can also provide documentation that they had the infection in the past and recovered.
Quote: "Testing does not eliminate all risk," announced CDC Director Robert R. Redfield. "But when combined with a period of staying at home and everyday precautions like wearing masks and social distancing, it can make travel safer, healthier, and more responsible by reducing spread on planes, in airports, and at destinations."
COVID-19 is raging across the U.S., with another grim milestone seen Tuesday as the death toll hit a new daily record of nearly 4,500. So far more than 22M cases have been reported to date, including more than 375K deaths. A massive vaccination campaign started in mid-December is also running behind, with just 9.9M people having received the first of two injections of Pfizer and Moderna's vaccine. That's prompting some changes. Health and Human Services Secretary Alex Azar said yesterday the federal government is changing the way it allocates coronavirus vaccine doses, which will be based on how quickly states can administer shots and the size of their elderly population. (64 comments)
Sheldon Adelson, the multibillionaire casino mogul and Republican Party megadonor, passed away on Tuesday from complications related to cancer treatment, according to a statement from Las Vegas Sands (NYSE:LVS), where he was chairman and CEO.
Backdrop: Starting in the late 1980s, Adelson moved into the casino business, purchasing the Sands Hotel and Casino in Las Vegas for $128M. The deal would eventually launch Las Vegas Sands into a global resort brand, with a string of lucrative casinos in the Chinese gambling enclave of Macao. Adelson built the $1.5B Venetian in place of the Sands building in 1996, while Las Vegas Sands' most recent construction was the Parisian Macao, a luxury hotel fitted with a half-scale copy of the Eiffel Tower.
Succession plan? The company already announced Rob Goldstein will become Chairman/CEO, which it expects will become permanent, but other impacts are being weighed out on Wall Street. "Over time, we would not be surprised to see a member of the Adelson family take over one of these roles, specifically with CFO Patrick Dumont a logical potential candidate," wrote Morgan Stanley analyst Thomas Allen. "With regard to the stock, Mr. Adelson only directly owns ~9% of the company's shares, with the majority of the family's ~57% ownership either owned by his widow Dr. Miriam Adelson and in family trusts."
Interesting fact: Las Vegas Sands is the largest gaming corporation in the world, employing more than 51,000 people worldwide, and is the only U.S.-based casino company to not lay off employees during the coronavirus pandemic. (9 comments)
Shares of Zoom (NASDAQ:ZM) quintupled in value last year as the stay-at-home trade saw investors dial up the video-calling service, but the stock has dropped considerably since peaking at $568.34 in mid-October. It's off by 36% since then, when reports began surfacing that COVID-19 vaccines were highly effective and would be rushed to market. Zoom is still valued at over $100B, a level that software companies don't typically reach until they have established multiple lines of business.
How is Zoom proving it isn't a one trick pony? The company is already profitable and disclosed Tuesday that it has now sold 1M seats for its Zoom Phone service. The internet phone product replaces office telephone systems by allowing businesses to consolidate voice, video, conferencing and messaging communications on a single platform, and is a core part of the company's larger unified platform (which includes Zoom Meetings, Zoom Chat, Zoom Rooms, and Zoom Video Webinars).
Signs also suggest Zoom is prepping for a serious expansion or acquisition. As of October, it had $730M of cash and equivalents (up from $283.1M in January), but that's not stopping the company from raising more capital. It just priced a $1.75B offering of 5.1M shares, marking its first since going public in April 2019. A typical boilerplate explanation said the proceeds would be used for "general corporate purposes," but "may also use a portion for acquisitions or strategic investments in complementary businesses, products, services or technologies."
Outlook: In its latest earnings report in November, Zoom said that fiscal fourth quarter revenue growth will approach 330%. The figure already topped 350% in each of the last two quarters, but as the pandemic starts to fizzle amid a broader vaccine rollout, Zoom will have to contend with the likelihood that people will return to the office and plan accordingly.
Scrambling to deal with a sudden competitive threat to its messaging platform WhatsApp, Facebook (NASDAQ:FB) has released a statement clarifying the upcoming changes to its terms of service. The privacy concerns have already triggered users to turn to rivals in droves, according to data from Sensor Tower, with millions downloading apps like Signal and Telegram.
What will change with the latest updates? Facebook and WhatsApp will now be able to share certain payments and transactions data in order to boost advertising (think Facebook Shops). The changes also describe how merchants communicating with customers via WhatsApp can choose to store those chats in Facebook-hosted servers and use that data to inform their advertising on Facebook.
What won't change? 1) WhatsApp cannot see private messages or hear calls, and neither can Facebook, 2) WhatsApp does not keep logs of who everyone is messaging or calling, 3) WhatsApp cannot see shared location and neither can Facebook, 4) WhatsApp does not share contacts with Facebook, 5) WhatsApp groups remain private, 6) WhatsApp messages can be set to disappear, 7) Users can download their WhatsApp data to see what information the company has on their account.
Go deeper: When Facebook purchased WhatsApp for $19B in 2014, it noted that it and the company's chat platform Messenger would operate as "standalone" products. The slow shift toward integration has been controversial internally, and may have contributed to the departures of WhatsApp cofounders Brian Acton and Jan Koum. A few months after leaving in late 2017, Acton co-founded the nonprofit Signal Foundation, whose encrypted messaging app Signal is becoming a rival to the initial company he founded. (50 comments)
What else is happening...
Doctor's death after COVID-19 vaccine is being investigated - NYT.
In Asia, Japan +1%. Hong Kong -0.2%. China -0.3%. India -0.1%.
In Europe, at midday, London flat. Paris flat. Frankfurt +0.1%.
Futures at 6:20, Dow -0.2%. S&P -0.3%. Nasdaq -0.3%. Crude +0.1% to $53.28. Gold +0.5% at $1853.70. Bitcoin -1.4% to $34667.
Ten-year Treasury Yield -1 bps to 1.13%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Consumer Price Index
9:30 Fed's Bullard: U.S. Economy and Monetary Policy
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 30-Year Note Auction
1:00 PM Fed's Brainard: "The Economic Outlook and Full Employment"
2:00 PM Fed's Harker: Economic Outlook
2:00 PM Treasury Budget
2:00 PM Fed's Beige Book
3:00 PM Fed's Clarida Speech