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Global growth in 2019: ‘Less strong and less synchronized’
This year’s economic indicators are not doing much to bolster confidence so far. The World Bank cut its growth forecast. China is pouring hundreds of billions of dollars into its slowing economy. Apple’s downgraded sales forecast, which led to a market sell-off, was just one of several warnings from major companies.
This week, several large banks announce their earnings, along with the likes of Netflix, UnitedHealth and Delta Air Lines. Yesterday, Citigroup reported quarterly revenue of almost half a billion dollars less than analysts had expected, saying economic uncertainty had hurt its trading business.
“Almost all economists are forecasting a slowdown” for 2019, Janet Yellen, the former Federal Reserve chairwoman, said in New York yesterday. She added:
“The global economy was firing on all cylinders in 2018 and now looks like we’ve got less strong and less synchronized global growth.”
The China factor: Companies seen as particularly vulnerable to a Chinese slowdown include Starbucks and, after passenger vehicle sales fell there for the first time in 28 years, Ford and General Motors. Alibaba’s president, Michael Evans, told a retail industry gathering yesterday that “China has slowed down,” blaming “natural causes” and trade tensions with the U.S.
A helping hand from Beijing: Chinese officials said today that tax reductions on a “larger scale” were coming, following cuts for major industries and in personal income taxes. It also announced a cut for small companies.
Britain’s Brexit vote: Prime Minister Theresa May puts her plan for withdrawing from the E.U. before Parliament later today, less than 75 days before exit would happen automatically. She is widely expected to lose, possibly by a wide margin, which could expose her to a no-confidence vote. European stocks opened higher, and market watchers are bracing for volatility after the vote, but Britons don’t seem that worried yet.
Today’s DealBook Briefing was written by Andrew Ross Sorkin and Stephen Grocer in New York, and Tiffany Hsu and Gregory Schmidt in Paris.
P.G.&E.’s bankruptcy tests insurers, investors and regulators
Pacific Gas and Electric Company, the California utility that has been in financial crisis after deadly wildfires in the state, said yesterday that it would file for Chapter 11 bankruptcy protection by the end of the month.
The company said its liability for damages from the wildfires could reach $30 billion, report the NYT’s Ivan Penn, Thomas Fuller and Lisa Friedman. The bankruptcy announcement, made in a regulatory filing, pushed the company’s shares down more than 50 percent and posed a challenge for state regulators, who will have to decide whether to raise electricity rates.
The utility’s woes could be just part of a wider economic toll from climate change, which is fueling wildfires nationwide.
The quick take: Lights will stay on, but power bills are likely to increase. Wildfire victims may have to accept smaller settlements. And California may find it harder to reach ambitious climate change goals.
Market fallout: Investors have long considered utilities a safe bet, so this is a reminder that volatility can strike any industry. Shareholders could be wiped out and bondholders could take a hit.
A complex bet: The P.G.&E. stock held by the Baupost Group, the hedge fund run by Seth Klarman, is part of a bigger wager on the utility. Baupost also bought $1 billion of legal claims that an insurer held against it.
The steel industry is under pressure
President Trump has repeatedly spoken of a revival in the American steel industry, crediting his trade policies.
But it’s now 10 months since he imposed 25 percent tariffs on steel imports, and prices in the United States have returned to their old levels. Hiring remains stagnant, and investors are wary about the industry’s long-term strength, the NYT’s Alan Rappeport writes:
Stock prices for some of the nation’s biggest steel manufacturers dropped by as much as 47 percent in 2018 amid fears of slowing global economic growth and the potential for Mr. Trump to reach trade deals that remove the tariffs.
The industry’s best hope would be major infrastructure legislation, which looks increasingly unlikely.
More: President Trump said yesterday that tariffs had put pressure on China’s weakening economy, but trade talks between the two nations have yielded little.
Day 25: It’s still shut down
President Trump spent a snowy weekend cooped up in the White House, serving fast food to the Clemson Tigers and not giving in to proposals to end the government shutdown. Yesterday, he rejected a suggestion by Senator Lindsey Graham of South Carolina to restart operations for three weeks while negotiating.
Mr. Trump wants $5.7 billion for a wall along the border with Mexico, where his repeated references to a “crisis” have not always reflected reality. His supporters remain behind him, even in areas where the federal government is a major employer and even as polls show that most Americans blame Mr. Trump and Republicans for the shutdown.
• The shutdown is a further blow to farmers already hurt by the U.S.-China trade war, the head of the USA Dry Pea & Lentil Council told CNBC. President Trump addressed the Farm Bureau at its annual convention in New Orleans yesterday, urging farmers to look past short-term pain.
• National parks that haven’t been closed have been plagued by trash piles and destroyed property, leading Tim Boyle, the chief executive of Columbia Sportswear, to spend $80,000 on a print ad urging the government to “make America’s parks open again.”
• Stephen B. Burke, the chief executive of NBCUniversal, put Jeff Shell in charge of Hollywood operations, including the international business and Telemundo, and said Mark Lazarus would oversee the broadcast network, the news division, the cable networks and the sports group. (NYT)
• Zoox, an autonomous car start-up, hired Aicha Evans, senior vice president of strategy at Intel, as its chief executive. (FT)
• The chairman of the investment group JAB Holdings, Bart Becht, stepped down after a split with his two partners over some ambitious deal-making. (FT)
• Jon Korngold, a General Atlantic executive, will lead a new Blackstone business investing in fast-growing companies. (WSJ)
The speed read
• Newmont Mining said it would buy its rival Goldcorp, a $10 billion deal that would create the world’s largest gold miner and signal a revival of M&A in the industry. (Bloomberg)
• Telecom Italia made a bid for the Italian unit of BT Group, heating up competition for an asset rocked by an accounting scandal. (Bloomberg)
• SoftBank plans more investment in the construction start-up Katerra. (Information)
• NBCUniversal said it planned to start an ad-supported streaming video service in 2020. (WSJ)
• Intel’s board has been looking for a chief executive for six months. It hasn’t decided yet, but wants to do so before the company reports earnings on Jan. 24. (Bloomberg)
• Pony.ai, a driverless car start-up in China, introduced a ride-hailing app for driverless cars. (CNBC)
• The world’s most retweeted tweet now belongs to Yusaku Maezawa, the Japanese online retail billionaire who was SpaceX’s first passenger. It promises 100 of those who retweet it a share of a $923,000 prize. (CNBC)
• Tesla stock stumbled as rivals such as Ford and General Motors announced electric vehicle plans at the Detroit Auto Show. (CNBC)
• Google employees are starting a social media campaign against the use of forced arbitration in misconduct cases. There was a walkout on the issue in November. (CNBC)
Politics and policy
• Representative Steve King of Iowa was removed by House Republican leaders from the Judiciary and Agriculture Committees after saying he did not see why white supremacy was considered offensive. (NYT)
• President Trump likes the freedom to do as he pleases. His nominee for attorney general, William P. Barr, has a similarly permissive vision of executive power. (NYT)
• Mr. Barr said he would let Robert Mueller finish his investigation, but also suggested that he could not stop Mr. Trump from ordering him to end it. (NYT)
• In a political game of “Would You Rather,” Democrats mull whether the best candidate in 2020 will be defined by attractive policy proposals, or by likelihood of beating President Trump. (NYT)
• No, Ivanka Trump won’t be the next World Bank president. But she will help the Treasury secretary, Steven Mnuchin, and the acting White House chief of staff, Mick Mulvaney, to choose one. (WSJ)
Best of the rest
• Carlos Ghosn, the former Nissan chairman detained in Japan since November on allegations of financial misconduct, was denied bail. He faces two more months in jail before trial. (NYT)
• Fiat Chrysler jumped off the sedan bandwagon well before the other Detroit automakers. Maybe that’s why it now seems the strongest of the bunch. (NYT)
• Coffee farmers in Central America, Colombia and Ethiopia are struggling to stay afloat as bean prices slump below a cent per cup. (Reuters)
• An enormous bet from an anonymous trader that could earn $175 million feels a lot like Warren Buffett’s wager more than a decade ago. (CNBC)
• Gillette has a new ad inspired by #MeToo. Men’s rights activists and right-wing publications don’t like it. (Guardian)
• Mastercard is taking its name off its logo, leaving just interlocking red and yellow circles. (CNBC)
• Representative Elijah Cummings, Democrat of Maryland, opened an investigation into pharmaceutical price increases with letters to 12 drugmakers, including Amgen, Celgene, Eli Lilly and Johnson & Johnson. (Reuters)
• HSBC has processed more than three million foreign-exchange trades worth $250 billion using blockchain in the past year. (FT)
• TV marketing aimed at black Americans has surged more than 50 percent in the last five years, according to a new study, driven by food companies. (Bloomberg)
• European hedge funds are struggling to raise money from American investors because of the S.E.C.’s concerns about E.U. data protection rules. (FT)
• Low unemployment need not lead to a surge in wages, according to the San Francisco Federal Reserve Bank. (Reuters)
• Passive funds had a record year in 2018, with 323 exchange traded funds listed in London, compared with 177 in 2017. (FT)
• FedEx has agreed to pay $35.5 million over claims that it delivered hundreds of thousands of illegal cigarettes in New York. (New York Daily News)
• At least two retailers, Walmart and Target, said they stopped selling Cut the Wire, a game that asks children to defuse a toy bomb, after parents complained. (NYT)
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