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- Chinese Vice Premier Liu He will visit the U.S. for trade talks with Steve Mnuchin and Robert Lighthizer this week, China's ministry of commerce said. (Bloomberg)
- Chevron has 4 days to make another offer on the table after Anadarko Petroleum said Occidental Petroleum's offer is "superior" to Chevron's bid. (Axios)
- Reuters journalists Wa Lone and Kyaw Soe Oo were freed this morning after being held in Myanmar for 500 days, convicted of breaking the Official Secrets Act. (Reuters)
1 big thing: The world can't afford a trade war right now
Chinese stocks were crushed last year after the Trump administration announced it would begin putting tariffs on essentially all Chinese imports to the U.S.
- History looked poised to repeat itself on Monday, after Trump called off the ceasefire, threatening to raise tariffs on Chinese goods to 25%. China's onshore stock exchange sank 7.4%, the biggest fall since January 2016 (the 4th largest decline this decade, 10th largest this century and 23rd largest in the history of the exchange, according to FactSet).
Between the lines: Chinese shares were little changed Tuesday. It shows that perhaps investors aren't quite ready to declare China's economy DOA after news Monday night that tariffs would go into effect "the first minute of Friday."
Why it matters: China is now more important to the health of the global economy than the U.S. It's the top trading partner to more countries and with emerging markets driving 60% of global GDP expansion is the engine powering the world's growth.
Catch-up quick: The trade war hit China at a moment of weakness in 2018. The country was attempting to unwind some of its problematic debt and lean into the reorientation of its economy from a goods producing third-world warehouse to a self-sufficient, service industry scion leading in next-generation AI and 5G technology.
- The combination of the trade war, the debt pullback and the shift of resources all weighed on China's growth, spurring the government to take action and re-introduce economic stimulus in late 2018.
- The measures look to have worked as China's manufacturing and GDP readings have rebounded.
The bottom line: China may now be stronger, but the rest of the world is weaker.
- The eurozone looks to be recovering but is still projecting just 1.1% growth this year. Italy just came out of recession, Sweden and Germany narrowly avoided one in 2018, and Britain is a hard Brexit away from a possible economic catastrophe.
- South America's largest economies — Brazil, Colombia and Mexico in North America — have seen some improvement in manufacturing data but are treading water, with Argentina lurching toward another economic crisis.
- Africa's 2 largest economies, South Africa and Nigeria, are sputtering and Australia is fighting to avoid its first recession in almost 30 years.
What they're saying: James Barrineau, head of emerging markets debt at Schroders, told me last year as the trade war heated up, "If the market were to conclude that trade wars were causing significant stress in an economy of [China's] size I think risk appetite globally would dry up pretty quickly."
Bonus: What’s behind China's stock market plunge
After a 30% surge that made the Shanghai Composite Index the best-performing major stock exchange in the world, China's onshore market has stalled out since April.
- First, it was a change of tone from the Communist Party's top decision-making body signaling a tougher stance on economic stimulus.
- The central bank also stopped injecting money into the financial system for 18 consecutive days in April.
- Then the country's top companies failed to impress during earnings season.
Where it stands: That pushed Chinese stocks down almost 6% from their April high. Monday's market rout brought losses on the index to 11% from the high, technically marking the start of a correction, according to the South China Morning Post.
- The sell-off hit both China's onshore and offshore markets, SCMP reports. "Out of the 3,524 companies that traded on the Shanghai and Shenzhen exchanges on Monday, 3,417 fell and the remaining 107 rose, while all the 50 constituents on the Hang Seng Index dropped."
2. Sinclair's stock hits all-time high
Shares of Sinclair Broadcast Group roared an inexplicable 35% on Monday, the biggest one-day gain in 10 years that pushed the stock to a record high. The jump came after the TV broadcasting company's deal to buy 21 regional sports networks from Disney was reported Friday.
- (Selling the sports networks was a condition of Disney's $71.3 billion acquisition of Fox's major entertainment assets.)
- "While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture," Sinclair CEO Chris Ripley said, according to Barron's.
Watch this space: The deal got Sinclair a bullish upgrade from B. Riley FBR analyst Zack Silver, but Monday's price action sent share prices well above his $57 price target.
3. Turkey gets worse
The outlook on Turkey somehow got worse on Monday with the country slipping into dictatorship, under a dictator who doesn't seem to care much for laws or macroeconomics.
What's happening: Turkey's government ordered a do-over of mayoral elections in Istanbul, overturning a win for the opposition against loyalists to President Recep Tayyip Erdogan.
- The country's lira currency fell to its lowest level since the currency crisis last year, when it was the weakest against the dollar it has ever been, on the news.
- Inflation is nearly 4 times the official target and the weakening currency will make it more expensive for Turkish companies to pay debt, much of which is in dollars and euros.
The big picture: The country is now in recession, having completely reversed an incredible economic expansion that had seen significant growth and plummeting unemployment. The country's GDP had grown an average of nearly 7% each quarter since late 2009.
- "We're in a political twilight zone, where the economy has fallen to the side," Anthony Skinner, Middle East and North Africa director at risk analyst Verisk Maplecroft, told Bloomberg.
Things will get worse before they get better: Erdogan recently won re-election and has replaced his finance and economic ministers with his son-in-law, Berat Albayrak, who held a meeting investors in attendance called "an absolute shit show" and the worst they'd ever seen during the IMF-World Bank meetings in April.
- Erdogan and Albayrak's plans to dig the country out of the economic malaise have been widely panned by investors and economists as unrealistic and overly optimistic. The duo have shown no sign of changing course.
4. Long Island City's Amazon effect
When Amazon announced its retreat from Queens, New York, amid a backlash from local activists, the Long Island City neighborhood seemed to have lost 25,000 new jobs and billions of dollars in investment.
- Instead, 2 months later, it's experiencing a boom, Axios' Erica Pandey writes.
"It's an Amazon effect," says Jonathan Wasserstrum, CEO of SquareFoot, a commercial real estate company. "A lot of people now get to piggyback on the work that they did."
What's happening: After Amazon's brief recognition made Long Island City an "it" place, it is suddenly a sought-after location with its own, singular cachet.
- Health care company Centene just signed a lease for 500,000 square feet in the Citi building that Amazon intended to occupy.
- A second big tenant is in negotiations to pick up another chunk of the building, Nicole LaRusso of CBRE tells Axios.
- In March, the month after Amazon left, SquareFoot got 6 times as many inquiries about Long Island City than the same month last year from other businesses looking to set up shop in the same area.
The big picture: Tech giants like Amazon, Microsoft and Google — magnets for top talent — have turned city after city into superstar tech hubs, beginning in Seattle and Silicon Valley and spreading to Austin and Boston.
But the Long Island City phenomenon suggests something more — that the big companies can anoint outlier neighborhoods, too, even if Big Tech itself does not stay.
And the incoming businesses get to take advantage of some of the same tax incentives that became a rallying cry during the push against Amazon:
- REAP, New York's incentive program for Long Island City, gives companies up to $3,000 per employee per year for moving to the area.
- While no single incentive package will come close to Amazon's $3 billion, neither will any single firm create 25,000 new jobs in one go, as Amazon promised. For example, Centene, which appears to be the biggest new get by Long Island City, is simply moving employees, not hiring more, reports Crains New York.