SubscribeArrow

Sorry the newsletter was late yesterday. Thanks for sticking with us.

Was this email forwarded to you? Sign up here.

Situational awareness:

  • Apple supplier Foxconn reported first-quarter revenues fell 42% from the previous three months while pre-tax income more than halved. (FT)
  • Eurozone industrial output fell for a 2nd straight month while analysts expect the German economy grew by 0.4% in Q1, but investor sentiment fell to -2.1. (France 24)
  • Walmart says it will match Amazon and offer 1-day free shipping on some items in select markets over the next few days with a plan to reach about 75% of the U.S. population this year. (Reuters)
  • Uber's stock fell 11% on Monday to $37.08 a share. CEO Dara Khosrowshahi told staff in an email to "expect some tough public market times over the coming months." (Bloomberg)
  • A couple was awarded more than $2 billion in a verdict against Bayer subsidiary Monsanto, the 3rd recent court decision involving claims its Roundup weed killer caused cancer. (NPR)
1 big thing: Suffering for the trade war

Illustration: Sarah Grillo/Axios

Reports show China's intellectual property theft costs U.S. companies hundreds of billions of dollars a year, and Chinese businesses have clearly benefited from a government-manipulated currency, goods dumping and non-tariff barriers at the expense of American firms.

But a lack of money is not America's problem — we are a $21 trillion economy with more millionaires than there are people in Sweden, and where the average CEO makes 271 times the salary of an average employee.

Why it matters: President Trump has yet to explain how a trade war victory benefits working people in places like Louisiana, Michigan and South Carolina who will suffer higher prices on account of his trade war.

  • Axios' Felix Salmon writes that, instead, the White House looks to be taking a different track: praising the virtue of sacrifice.

Wars are unpleasant things, and trade wars are no exception to the rule. When a country goes to war, its citizens have to make sacrifices, as Sen. Tom Cotton (R-Ark.) acknowledged on "CBS This Morning" Monday.

"There will be some sacrifices on the part of Americans, I grant you that, but I also would say that sacrifice is pretty minimal compared to the sacrifices that our soldiers make overseas, that our fallen heroes that are laid to rest in Arlington make."

Cotton's remarks come in the wake of White House economic adviser Larry Kudlow telling Fox News' Chris Wallace on Sunday that "both sides will pay... Both sides will suffer on this."

The bottom line: With a trillion dollars of global stock-market losses on Monday alone, and the continued implosion of agricultural prices, Republicans aren't even trying any more to make the case that trade wars are easy to win. Now that they're asking Americans to make sacrifices, they're going to have to start being more explicit about what cause the sacrifices are being made for.

2. Maybe not-so-transitory low inflation
Expand chart
Data: Federal Reserve Bank of New York; Chart: Axios Visuals

Fed Chair Jerome Powell said at the central bank's last meeting that he sees recent lower readings on U.S. inflation as "transitory," and likely to pick back up later this year. Data shows the market doesn't believe him and neither do everyday Americans.

The 1-year outlook on inflation among U.S. consumers fell by the most in 2 years last month, and is the third-largest drop since the survey was launched in mid-2013, according to the New York Fed.

Details: The decline in inflation expectations was broad-based across income groups, the survey found. Home price change expectations remained stable, but at very low levels. Fed officials also noted that respondents were more "optimistic about their households' overall financial situation and about the labor market."

  • The outlook for inflation over the next 3 years also declined significantly, showing that medium-term inflation expectations also have fallen.
3. Why Amazon is offering employees $10,000 to quit

Amazon is offering its employees $10,000 to quit their jobs with the company and start their very own delivery company — delivering packages for Amazon, of course.

  • The offer, announced Monday, is part of Amazon's efforts to speed up its shipping time from 2 days to 1 for Amazon Prime members. The company is also offering 3 months' worth of salary, and will lease blue vans with the Amazon logo on the side, AP reports.

Between the lines: Why is this happening? It's all about control, says Rick Geddes, professor of policy analysis and management at Cornell University. The company is looking to create a fast-food franchise model, which will give Amazon "sufficient control to ensure uniform service quality" without having to pay benefits or classify drivers as employees.

Perhaps most importantly for Amazon, which has made its living skirting taxes and government regulations of just about any form, "package delivery is not covered by the same legally enforced monopoly that covers first-class mail delivery," Geddes notes in a release. "Private companies are thus able to compete with the U.S. Postal Service in this space."

4. The power of a central bank rate cut
Expand chart
Data: FactSet; Chart: Axios Visuals

While stock markets around the globe have turned lower following President Trump's declaration last Sunday that he would raise tariffs on Chinese imports to 25%, New Zealand has managed to shake off the trade war blues. The S&P New Zealand 50 is the world's lone major benchmark index in the green for May.

The reason is simple: Its central bank cut interest rates to the lowest level they've ever been last week, coinciding with a jolt higher in stock prices while the rest of the globe was mired in trade war uncertainty.

Yes, but: Rate cut euphoria doesn't last forever. The bourse fell 0.56% in Tuesday trading. However, it's still outperforming the S&P and MSCI's All-Country World Index by a wide margin this month.

Bonus: The Reserve Bank of New Zealand's last cut was November 2016.

5. More pain may be coming for health care stocks

Monday was a rough day for pharmaceutical companies on Wall Street. The SPDR S&P Pharmaceuticals ETF fell more than 4%, and that was a relief.

Driving the news: Generic drugmakers were hit by a price-fixing lawsuit filed by 44 states alleging 20 corporate defendants conspired to fix prices of more than 100 generic drugs, raising prices by more than 1,000%.

  • Teva Pharmaceuticals shares fell more than 15%, with Mylan off 9%, and Endo International opening 10% lower after a downgrade by JPMorgan analysts, and then falling another 10% during the day. (Endo was already reeling from news it reported a wave of over 20,000 fatalities related to its drugs to the FDA.)

Why it matters: Health care stocks overall have had a terrible 2019 and it may just be beginning. A verdict or settlement in the lawsuit is likely years away, but the new spotlight the case puts on drug makers "spells trouble for investors," writes WSJ's Charley Grant, as the Trump administration looks to further dismantle the Affordable Care Act and take on high drug prices.

  • "The ACA is an ideal framework to make money: It maximizes access to health services without meaningful cost-control tools. The sector, which trails the S&P 500 this year, will suffer more if the risk of disruption increases."

The bottom line: Grant notes that lower drug prices are bad for every element of the health care sector. "Members of the supply chain, such as drug distributors, pharmacies and benefits managers, are generally paid for their services as a percentage of a drug's list price."