Nov 25, 2019

Axios Markets

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Situational awareness:

  • Charles Schwab is buying TD Ameritrade in a $26 billion all-stock deal. (CNBC)
  • Hong Kong's pro-democracy parties made huge gains in the district council elections amid a record voter turnout. (Axios)
  • The overseer of federal pension fund Thrift Savings Plan called proposed legislation that would prevent it from investing in China-based companies discriminatory. (Reuters)

At 1,199 words, this will take you less than 5 minutes to read...

1 big thing: Minimum wage hikes aren't hurting jobs

Illustration: Sarah Grillo/Axios

Axios' Stef Kight and Dion Rabouin report: 18 states rang in 2019 with minimum wage increases — some that will ultimately rise to as high as $15 an hour — and so far, opponents' dire predictions of job losses have not come true.

Why it matters: The data paints a clear picture — higher minimum wage requirements haven't reduced hiring in low-wage industries or overall.

Opponents argue that raising the national minimum wage would cause workers to lose their jobs, fail to combat poverty, and prompt fast food chains and others to raise prices or implement self-service checkout.

But job losses and price hikes haven't been pronounced in the aftermath of a recent wave of city and state wage-boost laws.

  • "The minimum wage increase is not showing the detrimental effects people once would’ve predicted," Diane Swonk, chief economist at international accounting firm Grant Thornton, tells Axios.
  • "A lot of what we’re seeing in politics is old economic ideology, not what economics is telling us today," she says.

By the numbers: Axios used Bureau of Labor Statistics data to compare job growth rates in four states with low minimum-wage laws vs. eight states with high minimum-wage laws, looking specifically at the food service and hospitality sectors.

  • Since 2016, all 12 states have seen growth in restaurant, bar and hotel jobs. (We picked that year because it was when California became the first state to pass a $15 minimum wage law, which takes full effect in 2023.)
  • Three of the four states with job growth that's higher than the U.S. median have passed laws that will raise the state minimum wage to at least $13.50.
  • Three of the five states with the slowest job growth rates were ones that did not have a state minimum wage above the federal minimum of $7.25 an hour.
  • An outlier was Massachusetts, which had the slowest job growth in the sector and currently has the highest state minimum wage: $12 an hour.

Yes, but: There could still be negative long-term effects, such as businesses choosing to locate in states with lower minimum wage requirements, according to a N.Y. Fed study.

  • "The danger is extrapolating too far and saying, 'We should raise wages to $30 an hour,'" Swonk says. "The current minimum wage increases were successful because they were regionally based, and not national or one-size-fits-all."

The bottom line: Opposition to higher minimum wage laws is increasingly based in ideology and orthodoxy rather than real-world evidence, economists say.

Bonus: Companies talk wage hikes
Expand chart
Data: FactSet; Note: Shows number of earnings calls that mention wage/s, "labor costs" or "minimum wage"; Chart: Axios Visuals

Companies are talking more about the higher wages that have come via mandated minimum wage increases or the higher salaries they are forced to pay to attract workers with such low unemployment.

  • Between the lines: The companies that hiked their pay voluntarily are defending increased costs to shareholders.

What they're saying:

  • "Our labor costs were slightly higher due to our decision to retain driver and warehouse personnel in a tight labor market," Sysco CEO Thomas Bené told investors earlier this month.
  • "We fully expect that [wage increases] will lead to lower employee turnover and better customer experience; and as a result, improved revenue growth," Gregory Carmichael said last month. Carmichael is the CEO of Fifth Third Bancorp, which announced it would up minimum wage for employees to $18 from $15 per hour.
  • "We expect continued pressure on store payroll based on competitive markets [and] states increasing minimum wage," Dollar Tree CFO Kevin Wampler told analysts during the company's Q2 earnings call.

Go deeper: Achieving both wage growth and profits is possible

2. Tiffany joins LVMH's stable of high-end brands

People walk by a Louis Vuitton display in Shanghai, China. Photo: VCG/VCG via Getty Images

It's official: LVMH is buying Tiffany for $135 per share in cash, or an equity value of $16.2 billion — giving the French luxury conglomerate a bigger foothold in the U.S. and the fast-growing jewelry market.

Why it matters: It's the biggest luxury-goods deal ever, and it comes as Tiffany is in the midst of a turnaround to reignite sales growth. The jeweler's revenue dropped on a year-over-year basis for the past three quarters.

  • Of note: China's economic slowdown, pressure from the trade war, and protests in Hong Kong have yet to weigh on LVMH or its luxury rivals.
  • Over the summer, LVMH and Hermes said strong demand in Asia helped boost financial results, per the FT. Kering, parent of Gucci, said it made up for lost business in Hong Kong with "brisk business across the rest of Asia," according to Reuters.

But those events have hit Tiffany, which has pushed into the Chinese market by building flagships in the country's major cities.

  • Tiffany depends heavily on foreign tourism to the U.S. — particularly Chinese tourists who are known to be big spenders. But their visits to the U.S. have been decreasing and they've been spending more money at home.
  • On the company's last earnings call, CEO Alessandro Bogliolo said that weak demand from foreign tourists and business disruption in Hong Kong, which caused store closures for six days, had hurt sales.

P.S. Tiffany is no stranger to LVMH.

  • Bogliolo worked at Bulgari for over a decade before the luxury house acquired the brand. He then held an executive position at Sephora, another LVMH brand.
  • Francesco Trapani, former chief executive of Bulgari, joined Tiffany's board in 2017.
  • Tiffany's former CEO Frederic Cumenal was also a LVMH alum.
3. The Brexit chaos effect
Expand chart
Data: IHS Markit/CIPS; Note: November 2019 reading is based on 85% of respondent's data; Chart: Axios Visuals

A closely watched survey of private sector activity showed the bleakest outlook for U.K. businesses since July 2016 — which was right after the country voted to leave the European Union.

  • Companies attributed the downbeat conditions to "a lack of clarity in relation to Brexit, alongside a fresh injection of business uncertainty from the forthcoming general election," per the survey.

Why it matters: The Brexit back-and-forth has left businesses in a tailspin amid a softening global economy.

  • It's still unclear if or when the U.K. will leave the EU, and the December general election may do little to provide clarity.

The backdrop: The British economy shrank for the first time since Q2 in 2012. The most recent data shows that the country marginally avoided a recession, with 0.3% GDP growth in Q3.

The big picture: The results push "the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy," Chris Williamson, an economist at IHS Markit, said in the survey's press release.

  • Two Bank of England officials voted for the central bank to cut rates earlier this month — splitting with the rest of the monetary policy committee.
4. Elon Musk touts Cybertruck orders

Elon Musk unveils the all-electric Tesla Cybertruck last week. Photo: Frederic J. Brown/AFP via Getty Images

Tesla CEO Elon Musk tweeted Sunday that the company had received 187,000 orders for its Cybertruck, two days after introducing the electric pickup truck. (Musk then sent a conspicuous follow-up "200K" tweet.)

Yes, but: The orders require only a $100 refundable deposit, so these numbers are an interesting-but-imperfect gauge of how many Cybertrucks Tesla will ultimately sell.

Keep reading

5. 1 fun thing: College students as the Fed

Photo courtesy of Pace's Fed Team

Pace University won this year’s “National College Fed Challenge” — an annual collegiate competition hosted by the Federal Reserve on Friday.

How it works: Students evaluate the economy and present a monetary policy decision — just like the Fed's rate-setting committee — to a panel of judges (working Fed officials).

  • Pace’s team recommended holding interest rates at the current level, implementing “temporary price level targeting" and instituting a standing repo facility.
  • They were also quizzed on the practicality of negative rates in the U.S. (something President Trump is keen on) and monetary policy's impact on income inequality.
  • "Probably the most intense work ethic I've ever had is preparing for this competition," said the team's captain, Scarlett Bekus — who also noted that the team prepped seven days a week as the contest approached.

The team met Fed chair Jerome Powell. Marissa Kleinbauer, a junior on Pace's Fed team, tells me they predict Powell will keep rates on hold until [the Fed] sees inflation consistently high for a severe amount of time.”

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