By Tory Newmyer
An investor walks by an electronic screen displaying stock prices at a brokerage house in Beijing. (AP Photo/Andy Wong)
The phenomenon illustrates the deeply entangled relationship between the world’s two largest economies and the difficulty Trump administration hawks face as they push for a decoupling.
Consider Silicon Valley. Chinese investors continue pumping money into start-ups and venture capital funds there, in spite of a 2018 law intended to curb foreign access to technologies that could compromise U.S. national security.
“Key rules for implementing the law are yet to be defined, often leaving investors and entrepreneurs to determine what deals are permissible,” the Wall Street Journal’s Heather Somerville reports. “Also, many U.S. tech entrepreneurs want to nurture connections to China.”
The investments are flowing the other way across the Pacific, too.
And this has some members of Congress and the Trump administration crying foul, arguing American dollars shouldn’t be underwriting investments that run counter to U.S. interests. And, as the New York Times’s Ana Swanson reports, they want to do something about it by seeking to block the federal government’s employee retirement fund from making a planned switch in the mix of its investments next year that would boost its Chinese holdings.
It’s part of a wider effort by American policymakers to apply greater scrutiny to the investment ties between the countries. “In recent months, officials have been making more frequent calls to re-examine China’s presence in the stock portfolios of American investors,” Swanson writes. “Administration officials, including members of the National Security Council, have begun pressing the Securities and Exchange Commission to increase scrutiny of Chinese firms, which have long skirted the auditing and disclosure requirements of American stock exchanges, putting investors at risk. Chinese law restricts the company documentation that auditors can transfer out of the country, limiting their visibility to American regulators.”
Hikvision cameras in an electronic mall in Beijing. (Fred Dufour/AFP)
“Business leaders and Wall Street executives have started pushing back, saying efforts to restrict investment constitute government interference and could destabilize financial markets,” Swanson writes. “When policymakers begin to pull the threads of financial connections between the United States and China, it’s not clear how much they will unwind, they say."
And efforts by lawmakers to tighten the screws on incoming Chinese investment appear to have come up short so far. The 2018 law to expand the powers of Committee on Foreign Investment in the U.S. initially chilled Chinese venture investment in the U.S.: It dropped 27 percent in the first six months of this year compared to the second half of last year, as the Journal’s Somerville reports. “But Cfius appears ill-equipped to police the venture-capital industry, current and former government officials say,” Somerville writes. “The government also hasn’t codified which technologies are off-limits to foreigners, so some startups and investors don’t see the need to file with Cfius.”
Trader Michael Capolino works on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)
"The Dow is short about 1 percent from its record close of 27,359, set July 15. The tech-rich Nasdaq closed at 8,325, up 1 percent but short of its all-time high of 8,330 from July 26.All three indexes are racing toward finishing October on the upside. The tenor of the earnings season, so far, has bucked worries about corporations underperforming, with technology leading the way on upbeat reports from Microsoft, Intel and AT&T. The new economy fueled markets despite last week’s downbeat forecast from industrial bellwether Caterpillar, and big misses by Wells Fargo and Goldman Sachs."
— Jay Powell faces another tricky meeting. WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell will walk a tightrope this week over whether and how to signal a potential timeout in rate cuts following an expected reduction on Wednesday. Markets largely expect another quarter-percentage-point rate cut at the Fed’s Oct. 29-30 meeting. It is the Fed’s next step that is uncertain, and investors will closely watch for clues in the central bank’s policy statement and Mr. Powell’s press conference...
"Without signs of a sharper deterioration in economic data, officials on Wednesday may seek to tamp down on expectations that they will keep cutting rates—including at their final scheduled meeting of the year in December—absent broader signs of weakening in the economy. At the same time, soft economic data of late could make officials uncomfortable delivering an 'all clear' signal, particularly because any residual damage from the U.S.-China trade war may not yet be fully reflected."
TRUMP TRACKERTRADE FLY-AROUND:
A truck carrying a cargo shipping container enters a shipping terminal at the Port of Los Angeles. (Patrick T. Fallon/Bloomberg News)
— Exports, imports drop: “U.S. exports and imports of goods both slumped in September to the weakest levels in more than a year, the latest sign [Trump’s] tariffs are weighing on the economy,” Bloomberg News’s Reade Pickert reports.
“The steeper decline for imports unexpectedly narrowed the merchandise trade deficit to $70.4 billion from $73.1 billion in August, according to Commerce Department data released Monday that compared with a projected gap of $73.5 billion in Bloomberg’s survey. The figures add to indications that Trump’s trade policies are challenging American companies as rising tariffs aimed at China muddle supply chains and add to uncertainty. Other data have shown that the tensions with China have helped to reduce business investment and slow the pace of hiring.”
— Huawei and ZTE might be barred from key government subsidy: “The U.S. telecommunications regulator plans to vote in November to designate China’s Huawei Technologies and ZTE Corp. as national security risks, barring their U.S. rural carrier customers from tapping an $8.5 billion government fund to purchase equipment or services,” Reuters’s David Shepardson reports.
“The Federal Communications Commission also plans to propose requiring those carriers to remove and replace equipment from such designated companies, FCC officials said ... [the agency said] a meeting said it plans to vote to ask carriers how much it would cost to remove and replace Huawei and ZTE from existing networks and to establish a reimbursement program to offset the costs of removing the equipment [at a meeting set for Nov. 19].”
A view from China: “Slowing economic growth. A rancorous trade war. Recalcitrant protesters in Hong Kong. A mass die-off of pigs and surging food prices. The frustrations are piling up for China’s leader, Xi Jinping,” the New York Times’ Chris Buckley reports before a major Communist Party meeting later this week.
Neighborhoods in Las Vegas as seen in 2009. (Jacob Kepler/Bloomberg News)
“Home equity lines of credit, open-ended loans that homeowners tap for cash using their properties as collateral, exploded in the run-up to the housing crash a decade ago, doubling in volume from 2003 to 2006, according to the Federal Reserve Bank of New York. But a resurgent housing market after the Great Recession hasn’t brought with it a return to Helocs, as they’re commonly known.”
- Meanwhile, the mortgage market is sizzling: “The mortgage market turned red hot over the summer, posting its biggest three months since the financial crisis,” the WSJ’s Ben Eisen and Laura Kusisto report. “Lenders extended $700 billion of home loans in the July-to-September quarter, the most in 14 years, according to industry research group Inside Mortgage Finance. Mortgage originations for the full year are on pace to hit their highest level since 2006, the peak of the last housing boom.”
- He plans to vote in the Democratic primary now: "The Democratic Party is at a crossroads, where it has to choose either a center-left candidate ([Joe] Biden, [Pete] Buttigieg, [Amy] Klobuchar, [Andrew] Yang) or a far-left populist ([Elizabeth] Warren, [Bernie] Sanders) as their nominee for president. I intend to help them choose the former. The latter propose to move the country too far in the direction of heavy-handed state control. And in doing so, they tempt those in the center and center-right to hold their noses and vote for Trump's reelection."
AT&T CEO Randall Stephenson. (Reuters/Carlos Barria)
“Chairman and CEO Randall Stephenson has used big acquisitions of Time Warner and DirecTV to turn AT&T into a major media provider, a shift that activist Elliott Management Corp. had called into question. Mr. Stephenson said … that AT&T would forgo big takeovers in the coming years to focus on improving the bottom line. The company reported another quarter revealing the challenges of moving beyond its traditional telephone business. Overall, quarterly profit and revenue declined from a year earlier. AT&T’s core cellphone business gained subscribers, but more than one million customers abandoned the company’s DirecTV unit.”
— How a New York securities law could doom Exxon: “The trial of New York’s $1.6 billion securities-fraud lawsuit against Exxon Mobil begins its second week Monday, after a series of witnesses failed to provide any concrete evidence that the oil giant knowingly misled shareholders about its climate change accounting,” Bloomberg News’s Erik Larson reports.
“New York has argued that Exxon intentionally misled investors by publicizing a ‘sham’ proxy cost, tricking the market and thus inflating the company’s stock price. Exxon contends that the two costs are used for different purposes, and that New York is conflating them to show a discrepancy where there is none. [New York Attorney General Letitia] James sued under New York’s Martin Act, which empowers officials to target a wide range of corporate behavior that may negatively impact shareholders. While New York claims Exxon intentionally misled shareholders, under this securities law it doesn’t have to prove intent to win.”
— Local governments try to regulate guns with taxes: “Tacoma, Wash., could soon become one of a handful of U.S. cities to levy high taxes on gun sales, opening a new front in the battle over how much power local governments have to regulate firearms,” the WSJ’s Zusha Elinson reports.
“Washington and 44 other states ban cities and towns from making their own gun laws. But the proposed tax in Tacoma, which would collect $25 per gun sale to fund violence prevention programs, is modeled on a law in neighboring Seattle that has already passed muster with the state supreme court. Opponents of the proposal, which would also collect taxes on ammunition, have said it would force gun shops out of the industrial port city of 215,000. In Seattle, lawmakers projected $300,000 to $500,000 a year in gun taxes, but last year received only $77,642 because gun stores moved away.”
MONEY ON THE HILLreport.
“The hearings will test the strength of Boeing’s relationships in Washington, where the company is seen as an American success story. It’s also become a power player due to its lavish contributions to politicians of both parties and an army of lobbyists that advance its commercial and military business lines.”
- What Muilenburg will say: “Muilenburg plans to acknowledge that his company made mistakes when he faces lawmakers this week who are looking for answers …,” my colleague Ian Duncan reports. “‘We know we made mistakes and got some things wrong,’ Muilenburg said in prepared testimony to a Senate committee reviewed by The Washington Post. ‘We own that, and we are fixing them.’ For Muilenburg, who was recently stripped of his role as chairman of Boeing’s board, the planned testimony is part of a campaign to win back public trust and to satisfy regulators — even as experts say the company is following its typical playbook after a crash, earning it a reputation for withholding information and pointing to others as blameworthy.”
"Ways and Means Committee Chairman Richard Neal (D-Mass.) presided over the event, which featured AIG CEO Brian Duperreault and other company leaders... More importantly, it had bipartisan support, with senior House members from both parties in attendance alongside finance industry lobbyists."
Mark Calabria, director of the Federal Housing Finance Agency. (Zach Gibson/Bloomberg)
Washington Post Fact Checker Glenn Kessler says Trump earns Two Pinocchios for his claim that household median income has surged under his presidency after modest increases under his two predecessors. While the pace of growth appears to have picked up, Trump is mostly enjoying a continuation of a trend: "When we compare the last 31 months of Obama to the first 31 months of Trump, the trend is even clearer," Kessler writes. I"n those 31-month periods, median household income rose 5.6 percent under Obama and 7.1 percent under Trump, respectively. That gives a slight edge to Trump but remember these monthly numbers bounce around a lot, so it’s unclear whether the recent pace under Trump can be maintained. In any case, the economic record of the two presidents is far closer than suggested when including the effect of the recession under Obama’s numbers."
- The House Financial Services Committee is scheduled to mark up a 10-year extension of the Export-Import Bank
- General Motors, BP, Amgen, Kellogg, Pfizer, MasterCard, Mattel, Electronic Arts, Allstate, ConocoPhillips, Yum China, Xerox, Denny’s and GrubHub, report their earnings.
- The Financial Services Committee continues its markup
- Apple, Facebook, AK Steel, Lyft, Sony, Starbucks, Yum! Brands, McKesson, General Electric, MetLife and MGM Resorts are among the notable companies reporting their earnings.
- CFTC Chairman Heath Tarbert keynotes the annual Futures & Options Expo. in Chicago
- Fiat Chrysler, Re/Max Holdings, Bristol-Myers, Clorox, Cigna, DuPont, Altria, Royal Dutch Shell, Sirius XM and Sanofi are among the notable companies reporting their earnings.
- Alibaba, U.S. Steel, Dominion Energy, AbbVie and Chevron are among the notable companies reporting their earnings.