Global economic woes shake the markets

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Economic gloom weighs on the markets

The global economy is under increasing stress as growth cools and trade tensions take a mounting toll. Yesterday, that became painfully apparent.

• New data showed the German economy hurtling toward a recession and factory output in China growing at its slowest pace in 17 years.
• That indicated, in part, how hard both have been hit by President Trump’s tariffs. And it increased concern that the U.S. may also be headed for an economic reckoning.
• Stocks and commodities tumbled, with the S&P 500 falling 2.93 percent. (One of the worst hit companies was Uber, whose shares fell 7 percent to an all-time low.)
• Investors raced to the safety of government bonds, pushing returns down and further entrenching the inversion of the yield curve, which is often seen as a harbinger of a recession.

Signs of a global slowdown are widespread in the industrial economy. Prices for important raw materials have fallen; manufacturing-based economies in Britain, China, Germany and Japan all appear to be contracting; and second-quarter profits for companies in the S&P 500 are set to contract 0.7 percent from a year earlier.

And Mr. Trump seems increasingly aware of the problem. His decision to hold off on applying some tariffs until December was the first sign of admission that his trade war with China may be hurting the domestic economy, Jim Tankersley of the NYT writes.

Things are “more complex and intractable” than Tuesday’s brief respite in the markets may have indicated, Neil Irwin of the Upshot writes. “Once chaos has been unleashed into the global economic system, it can be hard to reel back in.”

WeWork’s I.P.O. filing shows huge growth (and losses)

The real estate firm that leases shared office space set in motion its process of going public yesterday by filing a financial prospectus with regulators. Here’s what to make of it, courtesy of David Gelles and Erin Griffith of the NYT.

It’s burning money at a high rate. WeWork lost more than $1.6 billion last year on $1.8 billion in revenue. (Compare that to Uber, which is frequently criticized along similar lines: It lost $1.8 billion last year on revenue of $11.3 billion.) WeWork lost almost $900 million in 2017 and more than $400 million in 2016.

But its growth is impressive. WeWork said it had more than 604,000 workstations around the world, used by more than 527,000 “members.” Both figures were roughly double what they were a year ago. Its revenue doubled in 2018 compared with 2017.

“To justify its valuation, WeWork has tried to position itself as a tech company, promoting the efficiencies it can achieve as it gets bigger,” Mr. Gelles and Ms. Griffith write. (Investment by SoftBank last valued the company at $47 billion, which would make it the second-largest tech unicorn to go public this year, after Uber.)

Investors haven’t been impressed by huge losses in companies that have gone public this year, however. Zoom, which is profitable, and Pinterest, which is nearly so, have fared well after their I.P.O.s; Uber and Lyft, which continue to burn cash, have not.

“This company is a leap of faith,” Shira Ovide of Bloomberg Opinion writes. “Its ambition is ambitious even by unicorn standards. So are its growth, losses, potential conflicts of interest and financial gymnastics.”

Protests rattle Hong Kong’s economy

The violence and disarray at Hong Kong’s airport appear to be abating for now. But anxiety created by the unrest could linger as businesses weigh their futures in a city once lauded for its stability, Raymond Zhong of the NYT reports.

“The airport is crucial, utterly crucial for Hong Kong,” Tara Joseph, the president of the American Chamber of Commerce in Hong Kong, told Mr. Zhong.

• “Many of Hong Kong’s most important industries — trade, finance, tourism — depend on ready access to the skies,” Mr. Zhong writes.
• The airport disruptions have threatened “the easy accessibility that makes Hong Kong such a valuable gateway to China for the rest of the world,” he adds.
• And demonstrators “proved they had the ability to paralyze an important economic artery.”

The instability has sent shudders through Hong Kong’s economy at a delicate time as the trade war between China and the U.S. persists.

• “The territory’s stock market has plummeted in recent weeks, and forecasters have slashed estimates for economic growth,” Mr. Zhong writes.
• “The local economy expanded 0.6 percent in the latest quarter from a year earlier. The figure was unchanged from the quarter before and is the slowest pace of growth for Hong Kong since the aftermath of the global financial crisis.”

President Trump weighed in on the tensions overnight, saying on Twitter that China should “humanely” settle the protest situation in Hong Kong before a trade deal is reached.

A glimpse of Jeffrey Epstein’s attitude toward finance

Bloomberg has published excerpts from a 2003 interview that the disgraced and deceased financier had with David Bank, who was then a WSJ reporter. They provide insight into the way Mr. Epstein thought about the finance industry at the time.

“The way I saw it was physics,” he said of his approach to trading. “Finance seemed to be a different metaphor for the same processes, but when you hit your target, you were able to fly first class to Paris.”

“Making money is my priority for how I think about things. Money itself and how people make money and how money is made in different ways.”

“People would always call me and say, could you come look at my problems? Could you come see my situation and tell me what you think? And I started J. Epstein & Co. I think in 1982 or 1983. And I said I would only take you if you had a billion dollars or more.”

More: Bill Gates reportedly met with Mr. Epstein, years after the financier served jail time for soliciting an underage prostitute, to discuss philanthropy. And a New York woman who accused Mr. Epstein of rape has sued his estate.

The rise of the virtual restaurant

Food delivery apps like Uber Eats, DoorDash and Grubhub are starting to reshape the $863 billion American restaurant industry, Mike Isaac and David Yaffe-Bellany of the NYT report. It’s based on a simple idea: Restaurateurs no longer need to rent space for a dining room.

Two trends are emerging.

• One is “virtual restaurants” that are attached to regular establishments but make different cuisines specifically for the delivery apps.
• The other is “ghost kitchens” that have no retail presence and essentially serve as meal preparation hubs for delivery orders.

“Many of the delivery-only operations are nascent,” Mr. Isaac and Mr. Yaffe-Bellany write. “But their effect may be far-reaching, potentially accelerating people’s turn toward order-in food over restaurant visits and preparing home-cooked meals.”

• “Since 2017,Uber has helped start 4,000 virtual restaurants,” and Deliveroo has “started testing ghost kitchens” in Europe.
• “Other companies are also jumping in. Travis Kalanick, the former Uber chief executive, has formed CloudKitchens, a start-up that incubates ghost kitchens.”

But there are concerns about the trend. Critics say that commissions of 15 percent to 30 percent paid to companies like Uber Eats and Grubhub could be unsustainable for small independent eateries, while others say the trend undermines the connection between diner and chef.

Huawei reportedly helped African governments spy on opponents

The Chinese telecom company’s work in Africa may have gone beyond what it has publicly disclosed about helping governments with its surveillance and censorship tools, the WSJ reports.

• “Technicians from the Chinese powerhouse have, in at least two cases, personally helped African governments spy on their political opponents” in Uganda and Zambia.
• That included “intercepting their encrypted communications and social media, and using cell data to track their whereabouts,” according to unidentified security officials.
• In one case, their help reportedly halted the organization of street rallies and led to the arrest of a political opponent.
• The episodes “show how Huawei employees have used the company’s technology and other companies’ products to support the domestic spying of those governments,” the WSJ writes.
• The newspaper’s investigation found no evidence that Huawei had spied on behalf of Beijing in Africa.

Huawei said that it “rejects completely these unfounded and inaccurate allegations against our business operations,” and added that it had “never been engaged in ‘hacking’ activities.”

Revolving door

BuzzFeed’s chief marketing officer, Ben Kaufman, will step down from his position at the end of the year.

The speed read

Deals

• The F.C.C. chairman, Ajit Pai, circulated a draft order that would approve the $26 billion merger of T-Mobile and Sprint. It would still need to be approved by two of the other four F.C.C. commissioners.
• Joseph Tsai, a co-founder of Alibaba, is close to striking a deal that would give him sole ownership of the Brooklyn Nets. (NYT)
• VMWare is in talks to buy its fellow software maker Pivotal in a deal that would value Pivotal at about $4 billion. Both companies are controlled by Dell. (Reuters)
• Berkshire Hathaway’s holdings in financial-services stocks now represent about a fifth of its market capitalization, at about $100 billion. Also: The activist hedge fund Pershing Square has taken a stake in Berkshire. (WSJ, FT)

Politics and policy

• President Trump may be weighing action on gun control, but it remains a theoretical discussion. (NYT)
• “John Hickenlooper is dropping out of the presidential race.” (Axios)
• Britain’s opposition leader, Jeremy Corbyn, has proposed a no-confidence vote in Prime Minister Boris Johnson and the formation of a temporary government to prevent a no-deal Brexit. (FT)
• Italy’s rival parties are looking to block a potential power grab by Matteo Salvini, the country’s deputy prime minister. (WSJ)

Trade

• President Trump’s delay on tariffs on some Chinese imports is said to be seen by some officials in Beijing as an attempt to seek a “truce.” (WSJ)
• China has restricted imports of gold in recent months, which may be part of an effort to bolster its currency. (Reuters)

Tech

• The hacker accused of being behind the Capital One information breach also obtained data from over 30 companies and other organizations, according to federal prosecutors. (NYT)
• Tencent reported a surge in its quarterly profits. But Baidu has fallen out of the top five most valuable publicly traded Chinese internet companies. (FT, SCMP)
• India’s internet shutdown in Kashmir, now in its 11th day, has paralyzed the contested region. (NYT)
• Congress has demanded that the owner of 8chan, Jim Watkins, testify over the site’s involvement in recent mass shootings. (Business Insider)

Best of the rest

• “Private equity managers take less risk when more of their own money is on the line.” (Institutional Investor)
• A couple who used to work at Jones Day, one of America’s largest law firms, have sued the company, alleging that it discriminated in its parental-leave policies and fired one of them after he questioned the practice. (NYT)
• Amanda Lacaze, the C.E.O. of Lynas Corp., the world’s largest producer of rare earths, wants to wean the West off its dependence on China for the obscure metals. (WSJ)
• “Why America’s biggest charities are owned by pharmaceutical companies.” (Economist)
• Here’s former President Barack Obama’s summer reading list. (NYT)

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