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The Finance 202: U.S.-China trade standoff means no reprieve for rattled investors

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with Bastien Inzaurralde


Investors hoping for a reprieve from last week’s trade jitters aren’t likely to get one this week, as developments over the weekend pointed to more bumpiness ahead for U.S.-China trade negotiations. 

President Trump has signaled the two sides will have more than the 90 days to hash out their differences. But his chief negotiator said Sunday the administration will resume raising tariffs if no deal is in place by March. “As far as I'm concerned it's a hard deadline,” U.S. Trade Representative Robert E. Lighthizer said in a rare interview on CBS’s “Face the Nation.” 

Offered a chance to reassure markets, Lighthizer (whose name has also surfaced in speculation about who will replace outgoing White House chief of staff John Kelly) instead gave some cold comfort. He said, in essence, the United States will only agree to forgo more tariffs if the Chinese agree to major structural changes in their economic approach. “It is a very important matter, and there’s a long history of having things not work out.” 

Stocks are opening the week by continuing last week’s swoon, the worst since March, that ended with the Dow Jones industrial average down on the year. As of 6:30 a.m. this morning, Dow Jones Industrial Average futures dropped 72 points, implying a decline of 48.95 points at the open. Markets in Europe and Asia extended their sell-offs, too. 

Trump trade adviser Peter Navarro shrugged off the stock slide, following the president's lead in chalking it up to the Federal Reserve’s interest rate hikes. “We should be optimistic,” about a possible U.S.-China trade deal,” Navarro said on Fox News. “But the markets shouldn’t pin their hopes on that because that’s not what this is all about."

Meanwhile, tensions between the world’s two largest economies continue escalating over the arrest in Canada last week of Meng Wanzhou, chief financial officer of Chinese telecom giant Huawei. Chinese officials summoned Terry Branstad, the U.S. ambassador, on Sunday to demand the United States cancel its arrest warrant for Meng. A day earlier, they summoned the Canadian ambassador and threatened “severe consequences," without naming them, if Canada doesn’t release the executive. Meng's fate in the immediate term could be determined today at a hearing in Vancouver to determine whether she should be released on bail. 

Both Lighthizer and Navarro said the administration is treating the arrest as a separate matter from the trade talks (though one told CNN last week it could provide leverage). Yet the White House could face new pressure from Capitol Hill to pursue a broader crackdown on the company: Sen. Marco Rubio (R-Fla.) said Sunday he will introduce legislation banning Huawei — the world’s second-largest cellphone maker, ahead of Apple — from doing business in the United States.

It’s uncertain where the U.S.-China talks go from here. The Wall Street Journal’s Lingling Wei and Bob Davis report before the Huawei arrest became public, Chinese Vice Premier Liu He planned to lead a 30-member delegation to Washington to kick off negotiations this week. There’s no clarity yet on whether that remains the plan. The two sides might opt instead to talk over the phone and email instead of holding formal talks, per Bloomberg’s Shawn Donnan and Jenny Leonard

Trade isn’t the only source of volatility for the stock market. “While the large market swings on trade-related news underscore some investors’ view that a resolution to the impasse between the United States and China will be crucial to the survival of the economic expansion, there are other political and economic risks as well,” The New York Times’s Matt Phillips writes. “They include the fallout from the special counsel’s investigation of Russian interference in the 2016 presidential election, the relentless staff churn in the Trump administration, the efforts to negotiate Britain’s withdrawal from the European Union, and social unrest in France.”

But one JPMorgan Chase analyst estimates that uncertainty arising from Trump’s trade wars has already shaved up to 10 percent off the S&P 500 this year. That, and the market’s new choppiness around the trade talks, might convince Trump to favor a deal over intensifying hostilities. The president, after all, has reveled in stock market milestones as reflections of his own success.

And while he hasn’t tweeted about the market since Nov. 12, he reportedly remains glued to its performance. 

Trump appears to believe his preferred excuse for any sell-offs: It’s the Fed’s fault. “Fresh off what he described as a historic weekend meeting with China’s President Xi Jinping, Mr. Trump has questioned why the markets weren’t reacting more positively to the news of the potential breakthrough with Beijing,” the Journal’s Vivian Salama reported Friday. “In consulting with advisers, he remained convinced that the volatility wasn’t his own doing, but rather, the product of the Federal Reserve’s plan to raise the benchmark interest rate.”


— Goldman: If shoppers keep shopping, the economy will be fine. CNBC's Javier E. David: "For a market that's become increasingly jittery over the U.S. economy, Goldman Sachs has a message: All is not lost. Wall Street's head-spinning volatility, which last week shaved more than 1,000 points off the Dow Jones Industrial Average, has pushed stocks into correction territory and raised fears for 2019. Although falling stocks and rising interest rates will continue to weigh on sentiment, those negatives are likely to be offset by higher wages and oil prices in retreat, Goldman said in a research note to clients Saturday. ...

"November's jobs data released on Friday showed lower-than-expected payrolls growth but wages growing at the fastest rate in nearly a decade. ... And with consumer spending — which comprises 2/3rd of the vast U.S. economy — still strong, 'consumer sentiment is likely to stay elevated, reflecting strong underlying economic fundamentals as well as optimism about the labor market and income growth,' the firm said."

More from Goldman: The firm now sees a less-than-50-percent chance of a March rate hike. Bloomberg: "Holding in March would likely coincide with a volatile period for markets as the 90-day trade war truce between the U.S. and China is due to end at the start of that month, Chief Economist Jan Hatzius wrote in a Dec. 9 note... Overall Goldman expects the U.S. economy to grow above trend through most of 2019, unemployment to fall further below the Fed’s estimate of its longer-term level, and wages and prices to gradually move higher -- meaning the Fed will continue to tighten."

Investors aren't buying the dip. WSJ's Akane Otani: "Investors are approaching stock pullbacks with a reluctance last seen at the end of the dot-com era, undermining the 'buy-the-dip' strategy that many say has helped drive the longest bull market in U.S. history. Going back to the 1980s, the S&P 500 has typically rebounded after posting a weekly loss. This year, that trend has broken apart. The broad index has fallen an average of 0.04 percentage points on the day following weekly declines, marking the first time since 2002 that stocks have consistently slipped after one-week pullbacks ... What’s troubling: The only years that stocks haven’t reliably rebounded following dips have been either at the start of or in the middle of a bear market ...  In some years, like 1982, 1990 and 2002, investors were hit by not just a bear market but also a recession."

— May aborts Brexit vote. FT's George Parker, Laura Hughes and Cat Rutter Pooley: "Theresa May has aborted a planned vote on her Brexit deal on Tuesday — according to several people close to cabinet ministers — in a humiliating setback for a prime minister who was facing a heavy defeat in the House of Commons. Downing Street said at 11.15am that the vote was going ahead ‘as planned’ but shortly afterwards Mrs May told her cabinet on a conference call it would be postponed, according to officials briefed on the matter. Number 10 has so far declined to comment…Mrs May is expected to give a statement to the House of Commons at 3.30pm explaining her decision to pull the vote and how she intends to find a way past the political impasse in the coming days."

— Uber, in a race with Lyft, files for an IPO. NYT's Mike Isaac, Kate Conger and Erin Griffith: "Uber confidentially filed paperwork on Thursday to go public ... officially moving toward what is expected to be one of the biggest and most anticipated tech company stock market debuts ever. The ride-hailing company filed its paperwork with the Securities and Exchange Commission on the same day that its rival Lyft also filed for an offering. ... Each company is rushing to beat the other to the public markets in the first half of next year amid a fair climate for technology I.P.O.s and worries of a potential economic recession.

"Uber, the world’s biggest ride-hailing company, has been told by investment bankers that it could be worth as much as $120 billion in an I.P.O. At that valuation, it would be the biggest offering since the Alibaba Group of China began trading on the New York Stock Exchange in 2014. It would dwarf the market capitalization of more established companies such as Goldman Sachs, putting it at around the same value as I.B.M. or McDonald’s. And it would likely bring enormous windfalls for many of its investors, founders and employees."

Contrarians Made the Right Market Calls in 2018. Here's What They're Saying Now (Bloomberg)

Wall Street is expecting a two-year pause in big media and telecom deals after a crazy 2018 (CNBC)



Days after the U.S. and China announced a new trade agreement, President Trump's administration is struggling to explain what exactly is in it. (Video: JM Rieger/The Washington Post)

— Huawei gets key help from Silicon Valley, faces a reckoning in Washington. WSJ's Dan Strumpf: "American companies have been crucial in helping Huawei Technologies Co. become the world’s dominant telecommunications player. Silicon Valley giants from Intel Corp. to Broadcom Inc. and Qualcomm Inc. are top suppliers of Huawei, which buys their components to make equipment such as base stations and routers and Huawei mobile phones.

"By one estimate, Huawei will buy up to $10 billion of components from American companies this year—roughly the value of China’s automobile imports from the U.S.Qualcomm and Intel are also working with Huawei on its development of next-generation 5G technologies, a field in which the Chinese company’s aim to be a global leader has alarmed some in Washington. These interdependencies show how any U.S. actions against Huawei for alleged sanctions violations, which could go as far as a ban on it buying from American suppliers, could devastate Huawei’s operations, and curtail business for U.S. tech companies."

A Chinese company’s surprising ties to the Brookings Institution (Isaac Stone Fish)


Federal prosecutors filed new court papers on Dec. 7 that revealed a previously unreported contact from a Russian to Trump’s inner circle during the campaign. (Video: Melissa Macaya, Monica Akhtar/The Washington Post)

Ghosn, Nissan indicted in Japan. CNN Business: "Carlos Ghosn and Nissan, the Japanese automaker he saved from collapse, were indicted Monday on allegations of financial misconduct, deepening a crisis that already brought down one of the global car industry's most iconic figures. Tokyo prosecutors said they indicted Ghosn and Nissan for under-reporting his income over a five-year period and are investigating allegations that the practice went on for even longer…

"Former Nissan director Greg Kelly, who was arrested in Tokyo at the same time as Ghosn, was also indicted Monday, prosecutors said. The two men are alleged to have collaborated to under-report Ghosn's income in Nissan's securities filings by about 5 billion yen ($44 million) over a five-year period ending in March 2015, according to prosecutors.”

Generic drug "cartel" probe expands. The Post's Christopher Rowland: "Executives at more than a dozen generic-drug companies had a form of shorthand to describe how they conducted business, insider lingo worked out over steak dinners, cocktail receptions and rounds of golf. The 'sandbox,' according to investigators, was the market for generic prescription drugs, where everyone was expected to play nice... The terminology reflected more than just the clubbiness of a powerful industry, according to authorities and several lawsuits. Officials from multiple states say these practices were central to illegal price-fixing schemes of massive proportion... What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs."

— Ford and VW considering an expansive alliance likely to echo across the global auto industry. Paul A. Eisenstein at CNBC: "Barring a last-minute hitch, two of the world's largest automakers plan to announce a far-reaching alliance shortly after the new year, one that will cover a wide swath of territory and a broad range of technologies, new and old. The deal will serve as something of a jointly played jigsaw puzzle, allowing Ford Motor and Volkswagen to leverage their strengths and offset weaknesses at a time when the global automotive industry is facing not only traditional competitive challenges but the risks posed by massive technological transformation. Among the key elements expected to be part of the deal will be a cooperative effort to bring to market electrified and autonomous vehicles, something each of the companies already has spent billions of dollars developing."

— Housing slowdown unnerves those looking to 'fix-and-flip.' WSJ's Ben Eisen: "The pace of real-estate speculation is slowing, a sign of the darkening outlook in the U.S. housing market. Small-time investors who flooded into real estate in the past decade to take advantage of low borrowing costs and rising home values are starting to cut back. The moves indicate that the market’s short-term risk-takers see limited upside — and possible turbulence — ahead. The number of new home loans issued with terms of three years or less, typically used by investors looking to make a quick profit, dropped by 11% in the July-to-September period from a year earlier. It was the smallest amount since the second quarter of 2015."

— Your Apple products are getting more expensive. Here’s how they get away with it. The Post's Geoffrey A. Fowler and Andrew Van Dam: "You can't put a price on loyalty. Just kidding, it's $1,000. Apple this year became a trillion-dollar company. But it also became the thousand-dollar company: Suddenly you need at least 10 Benjamins to get the best new iPhone or the big iPad Pro. Apple has never made cheap stuff. But this fall many of its prices increased 20 percent or more. The MacBook Air went from $1,000 to $1,200. A Mac Mini leaped from $500 to $800. It felt as though the value proposition that has made Apple products no-brainers might unravel. ...

"Being loyal to Apple is getting expensive. Many Apple product prices are rising faster than inflation — faster, even, than the price of prescription drugs or going to college. Yet when Apple offers cheaper options for its most important product, the iPhone, Americans tend to take the more expensive choice. So while Apple isn’t charging all customers more, it’s definitely extracting more money from frequent upgraders."

A Yacht, a Monet, a See-Through Piano: The U.S. Collects on a Fugitive’s Shopping Spree (NYT)

President Trump said Dec. 7 Congress needs to pass the funding bill for the border wall by year's end, emphasizing the "tough people" in the migrant caravan. (Video: The Washington Post)

Dems don't trust Trump on shutdown deal. Politico's Burgess Everett and Heather Caygle: "Donald Trump’s meeting Tuesday with Nancy Pelosi and Chuck Schumer may go a long way toward determining whether the government enters a partial shutdown before Christmas. But as Democrats seriously re-engage with Trump for the first time in nearly a year, their broad distrust of the president has expectations for a deal at rock bottom... 

"The House and Senate Democratic leaders have been here before. Multiple times over the past two years they thought they'd cut a deal with Trump only to see him swiftly trash 'Chuck and Nancy' and demand hefty conservative concessions. Now Trump is threatening to shut down a large swath of the federal government if he doesn’t get billions in funding for his border wall. But Democrats say they have no reason to think talks this week will end differently than they have in the past."

GM fights government to retain tax credit for electric cars (AP)

Tesla CEO Elon Musk’s interview for “60 Minutes” touched on a wide range of topics. Here are six of the most noteworthy moments. (Video: Drea Cornejo/The Washington Post)

Musk: "I do not respect the SEC."  CNN Business: "Elon Musk settled securities fraud charges brought against him by the Securities and Exchange Commission earlier this year, but he is not done deriding the agency. ‘I want to be clear: I do not respect the SEC,’ he told Lesley Stahl during an interview with CBS' ’60 Minutes,’ which aired Sunday. Musk said he is abiding by the terms of his settlement deal ‘because I respect the justice system.’ But he reiterated that there is no love lost between him and the SEC.

“Musk and Tesla, the electric car company he runs, reached separate $20 million deals with the agency in September to settle securities fraud charges lodged against Musk that stemmed from statements he made on Twitter. As part of the agreement, Tesla said it would firm up its oversight of Musk's social media use by pre-approving posts that may contain information that is ‘material’ to Tesla's shareholders. But Musk, who has long been known for his liberal and informal use of Twitter, told Stahl that no one is proofreading all his posts."


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