THE TICKER

A Chinese court’s decision to ban the sale of older iPhones raises a nightmarish specter for American companies doing business in the country: They could find themselves exposed in the crossfire as trade tensions escalate between the United States and China. 

Officially, Apple was rung up for violating a pair of Qualcomm patents. But China watchers say it's hard to avoid the conclusion that Beijing targeted Apple to grab back some leverage in its broader confrontation with the Trump administration. 

Both Apple and Qualcomm said they learned last week of the decision, which was dated Nov. 30. That would place it a day before Canadian officials arrested Huawei Chief Financial Officer Meng Wanzhou on suspicions of fraud and violating U.S. sanctions against Iran. 

Meng’s arrest has  enraged Chinese leaders, even as they work to advance trade negotiations with the United States. (Chinese Vice Premier Liu He plans to travel to Washington in the new year to begin formal talks, after he talked via phone with Treasury Secretary Steven Mnuchin and  U.S. Trade Representative Robert Lighthizer, the Wall Street Journal reports.) 

And while the official chronology suggests the iPhone ban preceded the Huawei arrest, the symmetry between the moves is plain enough: Huawei, a Chinese corporate national champion, recently passed Apple as the world’s second-largest cellphone maker; and as the Trump administration demands the Chinese stop widespread intellectual property theft, the Apple case allowed the Chinese to sanction an iconic American company on the same grounds. 

“They are integrally linked political responses,” says Laura Martin, a Needham & Company senior analyst who covers Apple’s stock. Apple shares actually climbed Monday, helping the broader market rally from a 500-point loss earlier in the day — a fact Martin said indicated that the stock, which is down 25 percent this quarter, has bottomed out. 

China is nevertheless a key market for the gadget giant. “Apple has built a sizable business in China, relying on the country for about a fifth of its annual revenue,” the Wall Street Journal’s Tripp Mickle writes. The court decision banned all but the newest iPhone models. Per Mickle, “RBC Capital Markets on Monday estimated older models account for about 40% of sales in China, and that the ban could have an impact on about $12 billion in sales.” Nomura, in a research note, said the decision was likely politically motivated — and estimated it could cost Apple $5 billion.  But Apple itself said in a statement it will continue selling all its models in China. 

Since Trump launched his trade offensive, Beijing has worked to enlist American corporate brass in a campaign to push back against it. The move against Apple appears to mark a newly confrontational approach, with the message to other major U.S. businesses operating in China printed between the lines: This could get worse, and you could be next.

Yahoo Finance’s Bethany Allen-Ebrahimian reports that a “growing number of companies across China have announced new policies requiring the exclusive use of Huawei products, and in some cases penalizing employees who purchase iPhones.” For example, a refrigeration technology company sent a memo to employees Saturday offering the equivalent of $290 to anyone who exchanges an iPhone for a Huawei handset in the next month. 

The Chinese have tried before to turn the tables on American complaints of intellectual property theft. As Mickle notes, the same court imposing the injunction on Apple also banned Micron Technology, the largest memory-chip maker in the United States, from selling a range of products in China this summer. In that case, the court was responding to accusations by a Chinese state-owned rival and a Taiwanese partner that Micron had violated their patents. But the ruling came a month after Micron fired the first shot by suing the Chinese and Taiwanese companies in California court for stealing its trade secrets. 

Beijing has also directed boycotts of companies from other countries that got crosswise with it. “Last year, when South Korea deployed a U.S. missile defense system the Chinese government interpreted as a threat to its sovereignty, Beijing responded by directing a boycott of Korean goods, including cosmetics, electronics, and Hyundai and Kia cars,” we wrote here over the summer. 

But Apple’s exposure in China extends beyond whether consumers there keep buying its wares. The company also depends on a Chinese supply chain to put together its products.

And it is hardly the only U.S. company similarly reliant on the country as an assembly shop. “Cisco Systems Inc. routers, Dell Inc. computers, and wiring harnesses for Ford Motor Co. are sourced from China,” Bloomberg columnist Tim Culpan writes. “Even the servers deployed by Facebook Inc., Alphabet Inc. and Amazon.com Inc. can be traced back to the country’s deep supply chain… Despite the rhetoric from both sides, cooler heads have so far prevailed: Americans are still getting their iPhones, and Chinese can buy Qualcomm Inc. chips. But increasingly, foreign components are being replaced by local versions. The same cannot be said for U.S. hopes to replace Chinese labor, factories and supply chains.”

Bank of America analyst David Woo — who earned credibility as a forecaster in September 2016 when he said investors were underweighting the possibility of a Trump win, and predicted if he did, the economy would surge on fiscal stimulus — says prospects are fading for a lasting U.S.-China peace.

Woo said in an interview on Bloomberg TV on Monday he just returned from China, and his biggest takeaway is that “we may be this close to sort of a nationalistic, anti-American backlash in China, which so far hasn’t happened by the way… This Huawei news has been widely circulated within China over the last 24 hours.”

MARKET MOVERS

May scrambles for new Brexit deal. FT's George Parker and Laura Hughes: "A humiliated Theresa May will embark on a tour of European capitals on Tuesday to plead for a better Brexit deal, after the British prime minister was forced at the eleventh hour to abort a crunch House of Commons vote on her plan. Mrs May admitted she was facing defeat by a ‘significant margin’ in the vote scheduled for Tuesday, but there were ominous signs from Brussels that the EU was not going to cut her an improved deal.

"Donald Tusk, European Council president, said the EU was ‘ready to discuss how to facilitate the UK ratification,’ but warned there could be no renegotiation of the Brexit deal or the controversial Irish backstop. Mrs May’s Brexit deal and her premiership now hang by a thread. Jacob Rees-Mogg, leader of the Conservative pro-Brexit European Research Group, said chaos had descended. ‘It’s not really governing, it’s an awful muddle,’ he said."

Powell widens charm offensive. Bloomberg's Craig Torres: "Jerome Powell is ramping up Federal Reserve communication to build public trust and help insulate it from political attack. In recent weeks, the Fed has announced a series of initiatives, including a monetary-policy review roadshow, a semi-annual assessment of financial stability, and its inaugural Supervision and Regulation Report. These follow Powell’s early promise of ‘plain-English’’ explanations and a doubling of his press conferences starting next year.

"Those initiatives, from the Fed’s first chairman from private equity, are aimed at broadening public support at a time when the central bank is raising borrowing costs for consumers and businesses. Powell’s mission has taken on greater urgency given [Trump’s] attacks and the residual suspicion in Congress about Fed power. The strategy marks a break from the Fed’s typically stoic posture when under assault from the outside, effectively going on the offense to preserve its independence rather than assume a defensive crouch."

Meanwhile, Wall Street sees the Fed slowing, or even pausing altogether, its rate hikes next year, Reuters reports

— Most major global stocks already in a bear market. Bloomberg's Luke Kawa: “The majority of the biggest global stocks, as well as many indexes, are already in bear-market territory. Of companies in the MSCI World Index — a gauge of developed-market firms — 52 percent are down by more than 20 percent from their 52-week high . . . The MSCI World gauge fell as much as 1 percent Monday, with the drop worsening after the start of the U.S. session. The S&P 500 was off as much as 0.9 percent. If it’s anything like the two most recent experiences — the 2011 and 2015-16 retreats — the share of constituents off at least 20 percent from their annual high may be poised to swell to two-thirds.”

— Job market stays hot. Christopher Rugaber at AP: “The number of open jobs rose in October to the second-highest on record, evidence that U.S. employers remain determined to hire despite ongoing trade disputes and rocky financial markets . . . . The number of job openings increased 1.7 percent to a seasonally adjusted 7.1 million. That is not far from the record of 7.3 million reached in August... The data underscore that the labor market remains strong and suggest that last Friday’s jobs report, which showed a modest drop in the pace of hiring, does not reflect a pessimistic outlook among employers.”

French President Emmanuel Macron on Monday said he will raise the country's minimum wage after four weeks of impassioned, and sometimes violent, protests focused on the struggles of the poor and working class. 
The Hill
TRUMP TRACKER

TRADE FLY-AROUND: 

China moves on car tariffs. Bloomberg: “China is moving toward cutting its trade-war tariffs on imported U.S.-made cars, a step already brandished by [Trump] as a concession won during trade talks in Argentina. A proposal to reduce tariffs on cars made in the U.S. to 15 percent from the current 40 percent has been submitted to China’s Cabinet to be reviewed in the coming days, according to people familiar with the matter. Shares of carmakers including BMW AG, Ford Motor Co. and Tesla Inc. rose on the news. The step hasn’t been finalized and could still change.”

— Huawei executive asks for bail in U.S. extradition case and promises she won't flee. Julie Gordon at Reuters: “A Canadian provincial court in Vancouver on Monday weighed whether to grant bail in an extradition case to a top executive of China’s Huawei Technologies following her arrest at the request of the United States. Lawyers for Huawei’s Chief Financial Officer Meng Wanzhou made their case for her freedom, arguing that a slew of high-tech surveillance devices could ensure she does not flee. Meng faces U.S. accusations of misleading multinational banks about Huawei’s control of a company operating in Iran, putting the banks at risk of violating U.S. sanctions and incurring severe penalties.”

Chamber backs Nafta 2.0. Politico's Megan Casella: "The influential U.S. Chamber of Commerce has formally endorsed the U.S.-Mexico-Canada Agreement and will help the Trump administration win support for the deal in Congress — but warned against a withdrawal from NAFTA... The Chamber's decision to put its lobbying power behind the effort to ratify the deal could prove crucial to winning support from business-friendly lawmakers, mainly Republicans, who had expressed concern over provisions that they felt ran counter to their interests, like the sunset clause.

MELTDOWN WATCH:

POCKET CHANGE

Former Bloomberg execs to face fraud charges. NYT’s Charles Bagli: “More than 18 months ago, the Manhattan district attorney’s office opened yet another investigation into fraud in the city’s $62 billion construction industry, this one involving Bloomberg L.P., the financial information and media company owned by former Mayor Michael Bloomberg, who is considering running for president in 2020. As investigators peeled back the complex layers of contracts, contacts and under-the-table favors between electrical contractors, vendors and corporate executives they made a startling discovery: It was an inside job.

“On Tuesday, the district attorney and the State Police are expected to arrest more than a dozen executives, including senior executives in New York of Bloomberg’s global construction and facilities department, on fraud, theft and bribery charges, according to one executive briefed on the investigation and defense attorneys. The pay-to-play scheme, investigators say, operated undetected at Bloomberg and involved interior construction work at the company’s offices, including its headquarters at 731 Lexington Ave.”

— The apps on your phone are tracking you. And they're selling your location data, too. NYT's Jennifer Valentino-DeVries, Natasha Singer, Michael H. Keller and Aaron Krolik: “The millions of dots on the map trace highways, side streets and bike trails — each one following the path of an anonymous cellphone user. . . . As smartphones have become ubiquitous and technology more accurate, an industry of snooping on people’s daily habits has spread and grown more intrusive. . . . 

“At least 75 companies receive anonymous, precise location data from apps whose users enable location services to get local news and weather or other information . . . Several of those businesses claim to track up to 200 million mobile devices in the United States — about half those in use last year . . . . . [Data] reveals people’s travels in startling detail, accurate to within a few yards and in some cases updated more than 14,000 times a day. These companies sell, use or analyze the data to cater to advertisers, retail outlets and even hedge funds seeking insights into consumer behavior. It’s a hot market, with sales of location-targeted advertising reaching an estimated $21 billion this year.”

— Home equity growth fizzles. Diana Olick at CNBC: “Homeowners in most places are still seeing their nest eggs get a little bigger, but the gains are shrinking quickly. The average homeowner with a mortgage saw a gain of $12,400 in home equity between the third quarter of last year and this year . . . That includes price appreciation and paying down the mortgage. That is down from $16,000 in annual gains in the second quarter, and the smallest gain in two years . . . Home values were up 5.4 percent annually in October. . . but they had been gaining close to 7 percent a few years ago and only recently have the gains been slowing more dramatically."

The "Fearless Girl" statue was installed outside the New York Stock Exchange on Monday after standing in front of the "Charging Bull" statue in a nearby park.
MONEY ON THE HILL

Dems to meet with Trump as shutdown looms. The Post's Erica Werner: "Democratic leaders plan to offer President Trump $1.3 billion in funding for a border fence when they meet Tuesday at the White House, a bid that falls far short of the $5 billion Trump is demanding to fund a border wall. Democrats, Republicans and the White House have until Dec. 21 to reach a budget deal if they are to avert a partial government shutdown, but talks are deadlocked over funding for the wall. As House Minority Leader Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles E. Schumer (D-N.Y.) prepare for the Tuesday morning, Democrats and Trump are, if anything, moving further apart.

"Schumer had previously suggested Trump accept $1.6 billion in border funding, the funding level included in a Senate bill with bipartisan support. But that $1.6 billion would struggle to pass the House, where Democrats won’t support it because they say it’s too much and Republicans because it’s not enough."

The Switch
Google chief executive Sundar Pichai's first-ever testimony to Congress on Tuesday is shaping up to be a major test of his skills in managing the company’s reputation at a time when several of Silicon Valley’s biggest names are in crisis — and when many of Google’s employees are in revolt.
Tony Romm
THE REGULATORS

Mark Calabria to oversee Fannie, Freddie. WSJ's Andrew Ackerman and Kate Davidson: "The White House is preparing to pick a vice presidential aide and critic ofFannie Mae and Freddie Mac to the post responsible for overseeing the housing-finance companies. The Trump administration is expected to soon announce that it plans to nominate Mark Calabria to become the director of the obscure but powerful Federal Housing Finance Agency, the regulator for the two companies, according to people familiar with the matter. Mr. Calabria currently serves as chief economist to Vice President Mike Pence... 

"Mr. Calabria holds iconoclastic views of mortgage-finance matters and has been critical of some of the basic foundations of the U.S. mortgage market, advocating for the elimination of government support for the 30-year fixed-rate mortgage and for banks to hold more of the loans they originate. He has also mused publicly on Twitter about imposing penalties for borrowers who repay their loans early as well as setting household-income limits for loans backed by Fannie and Freddie.

Trump administration buries report on Wells fees. Politico’s Michael Stratford: The Trump administration for months concealed a report that showed Wells Fargo charged college students fees that were on average several times higher than some of its competitors… It was produced by the Consumer Financial Protection Bureau office previously led by Seth Frotman, who quit as the bureau’s top student loan official in protest of Trump administration policies. Frotman said in his resignation letter that CFPB leaders had ‘suppressed the publication’ of the report.

“The previously unseen analysis examined the fees associated with debit cards and other financial products provided by 14 companies through agreements with more than 500 colleges across the country. Wells Fargo provided roughly one-quarter of those accounts but the bank collected more than half of all fees paid by students, according to the report data. The bank’s average annual fee per account was nearly $50, the highest of any provider.”

The bank has to keep a lid on growth, the Fed says. Reuters's Patrick Rucker and Imani Moise: "Wells Fargo & Co must keep a lid on its growth until the bank has hardened its risk management policies to prevent any further abuse of its customers, said Jerome Powell, chairman of the Federal Reserve. In February, the Fed ordered Wells Fargo to freeze its balance sheet, keeping its assets below $1.95 trillion, until it put new checks on senior managers and gave the board new powers to sniff out abuses. 'We do not intend to lift the asset cap until remedies to these issues have been adopted and implemented to our satisfaction,' Powell wrote in a letter to U.S. Senator Elizabeth Warren seen by Reuters."

DAYBOOK

Coming soon:

THE FUNNIES

— From The New Yorker's Emily Flake:

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