The Lighthizer effect
As investors, economists and world leaders weigh the prospects of Donald Trump winning the election, one of their biggest questions is how he would potentially upend global trade.
Just this week, the former president told supporters at a Pennsylvania rally that he would pass what he called the “Trump reciprocal trade act,” and make the European Union “pay a big price” for supposedly not buying enough American-made goods.
Trade has become a key election issue, too, with Democrats arguing that Trump has done more harm than good to blue-collar voters. But are Trump’s repeated vows to ratchet up tariffs on allies and rivals — despite the potentially hefty hit to growth and inflation — a glimpse of things to come?
For clues, watch Robert Lighthizer. The 77-year-old was the top trade official in the Trump White House, and has been a major influence on his “Tariff Man” approach. This time around, Lighthizer — an international trade lawyer with a reputation as an aggressive litigator for his former corporate clients — has been mentioned as a potential candidate for Treasury or commerce secretary, The Times’s Ana Swanson and Elizabeth Williamson report.
Lighthizer has told money managers to watch for tariffs early in a second Trump administration, according to CNBC. Investors are increasingly worried about a new trade war, according to Bank of America’s latest global fund manager survey.
Some companies are already bracing themselves. Timothy Boyle, the C.E.O. of Columbia Sportswear, told The Washington Post that the sportswear maker was “set to raise prices” to offset higher tariff-related input costs. Airbus, the big European plane maker, also said it was preparing for the possibility of higher U.S. levies.
The stakes are high. The economy is a top issue with voters, with Trump retaining a slim edge over Kamala Harris in most polls on the issue. That’s despite both parties adopting an “America First” economic approach that involves placing steep tariffs on China and encouraging manufacturing at home, especially in battleground states.
Less clear is whether those efforts, and an economy that’s growing solidly, will win votes for Harris or Trump.
In other election news: The Economist endorsed Harris, saying a second Trump term carried “unacceptable risks.” Pentagon is increasingly concerned about its reliance on Elon Musk’s SpaceX and his ties to China and foreign government leaders. And Musk has been ordered to appear in a Philadelphia court today over his $1 million giveaway to registered voters in battleground states.
HERE’S WHAT’S HAPPENING
Investors brace for a major inflation report. The closely watched Personal Consumption Expenditures index is expected to show that inflation cooled further last month, even if many voters aren’t feeling it. The release, along with tomorrow’s jobs report, are the last major pieces of economic data before next week’s Fed meeting. Elevated numbers could affect the central bank’s outlook for lowering interest rates.
Starbucks’s new C.E.O. details more changes to revive sales. Among the moves outlined by Brian Niccol are limits to customization of drink orders and reintroducing a condiments bar so that consumers can add their own milk or sugar. The goal is to serve up drinks faster and improve the overall in-store experience, as customer dissatisfaction weighed on sales for a third straight quarter.
A top FTX executive avoids prison time. Nishad Singh, a former lieutenant to Sam Bankman-Fried, was sentenced to three years of supervised release for his role in the collapse of the crypto exchange. The federal judge presiding over his case lauded Singh’s cooperation with prosecutors and said his role was more limited than other Bankman-Fried aides who struck plea deals and still received prison sentences.
Britain’s new Labour government outlines big tax increases. Rachel Reeves, the country’s finance minister, announced about £40 billion (about $52 billion) in higher taxes, including higher charges for employers and bigger capital gains and inheritance levies. The moves are meant to pay for increased government spending.
New questions about Polymarket’s odds
Few start-ups have gained as much popularity in this election cycle as Polymarket, where bettors have wagered on the outcome of the presidential race — and seem to be increasingly favoring Donald Trump.
Proponents of prediction markets like Polymarket say they can be more accurate than polls. But new research suggests that Polymarket has been subject to potentially significant manipulation.
Polymarket has been a breakout star in this emerging sector, promoted by both academics and Elon Musk as more accurate than traditional polls as an election forecaster. Wall Street firms are increasingly citing its odds in research and in trades.
Polymarket has gained more coverage as its odds suggest that Trump is a clear bettors’ favorite, sitting above 64 percent. Odds on other markets show a tighter gap. (Political prediction markets track the odds of a candidate’s victory implied by bets on a platform; polls reflect how people intend to actually vote.)
But there has been a flood of questionable trades on Polymarket, according to Fortune, citing analyses by the research firms Chaos Labs and Inca Digital. Perhaps a third of activity on the platform was so-called wash trading, where shares of a contract are rapidly bought and sold as a way to create a misleading picture of trading volume.
That matters because any gap between actual and perceived trading volume undercuts a platform’s credibility. A Polymarket spokesman told DealBook that its terms of use “expressly prohibit market manipulation.”
Polymarket has faced questions about trading on its platform before. For weeks, users have speculated about one trader who amassed a huge pro-Trump position in the contract, and whether that individual was seeking to skew the odds in the former president’s favor. The company told DealBook that it had identified the individual as an unnamed French trader who was acting on “personal views of the election.”
The Times has reported that, despite Polymarket being closed to U.S. customers after a 2022 settlement with federal regulators, it was an “open secret” that Americans could participate on the platform by using software to obscure their true locations.
It’s unclear what the latest findings might mean for Polymarket’s business. The company has big growth plans, The Times has reported, including working to secure a $50 million fund-raising round led by Blockchain Capital and potentially creating its own digital token.
Wash trading often happens on crypto platforms, especially those poised to offer their own tokens. The Polymarket spokesman told DealBook that because the company’s platform is built on the blockchain, where transactions are publicly recorded, its market is more transparent than most.
Microsoft and Meta’s A.I. warning
Shares in Microsoft and Meta fell in premarket trading — as did S&P 500 futures — this morning, despite both companies reporting quarterly earnings that beat expectations.
The reason for the sell-off is a familiar one: worries that both companies will have to spend billions more to meet soaring demand for artificial intelligence services.
Microsoft is struggling to keep up with demand. The company reported big gains in quarterly sales and profits, with revenue at its Azure cloud business up 33 percent on the back of the A.I. boom.
But Amy Hood, Microsoft’s C.F.O., warned that it wasn’t building data centers fast enough, crimping growth in the fourth quarter. “We are in short supply,” Hood told Bloomberg, “and so we remain focused on getting that into a more balanced position.”
Expanding A.I. infrastructure is a huge challenge for Big Tech. Microsoft, along with Google and Amazon, has ramped up spending on data centers and finding ways to power them. Microsoft is financing a plan to restart a nuclear reactor at Three Mile Island.
Others are seeing opportunity: The investment firms KKR and Energy Capital Partners will invest $50 billion in data center and power projects to support A.I. development.
Meta expects to spend billions more on A.I. well into next year. The company said revenue rose by almost a fifth year-on-year and profits by 35 percent. But Mark Zuckerberg, Meta’s C.E.O., told investors that the company would keep spending heavily on long-term bets like A.I.
Costs are forecast to hit nearly $100 billion this year, and quarterly operating losses at Reality Labs, Meta’s unit focused on augmented and virtual reality, topped $4 billion. Zuckerberg warned that losses would widen “meaningfully.”
Is the great tech rally at risk? Bumper earnings from the so-called Magnificent Seven, the companies leading the A.I. race, have lifted the S&P 500 to a series of record highs this year. So far, this earnings season isn’t exactly following that script.
Up next: Amazon and Apple report today.
E.V. wars
Western car makers have had a rough week, and the common thread is China.
BYD, the Chinese electric vehicle leader, has overtaken Tesla in sales for the first time, and Volkswagen’s China woes sunk profits. Now, Beijing is said to be telling its car makers to hit the brakes on investing in Europe as a global trade fight over E.V.s accelerates.
BYD scored another win against Elon Musk’s E.V. giant. The company said revenues soared 24 percent in the third quarter to $28.2 billion, beating Tesla’s $25.2 billion for the same period. Strong domestic demand — backed by government subsidies — helped.
BYD’s success will renew questions about Tesla’s prospects in China. The country is a crucial market for the company as it looks to build on strong September sales data. But rising competition from Chinese rivals is eating into its lead.
Mary Barra, the C.E.O. of General Motors, warned this week that the price war there was “not sustainable” as only a few of the roughly 100 E.V. makers are profitable.
Volkswagen’s struggles in China are forcing a much bigger rethink. The German company was the longtime leader in China, the world’s biggest car market, after decades of investment. But a shift in demand and accusations over labor practices at its factory in Xinjiang, the region where Beijing has cracked down on the Uyghur ethnic group, have hurt. The company is facing its biggest crisis in years. (Volkswagen has denied using forced labor.)
The European Union’s fight with China over E.V.s only adds to the pressure. Beijing has reportedly told its car makers to stop investment in Europe after Brussels imposed new tariffs on Chinese-made E.V.s this week, according to Reuters. Expect more pressure on Western car makers with big businesses in China.
THE SPEED READ
Deals
The German conglomerate Siemens agreed to buy Altair, an American engineering software company, for $10.6 billion. (Reuters)
Jeff Lurie, the owner of the Philadelphia Eagles, is said to be in talks to sell a stake in the N.F.L. team to the family of Susan Kim, a tech mogul. (Bloomberg)
Elections, politics and policy
Federal prosecutors are said to be investigating links between the trader who helped the hedge fund Elliott Management profit from bets on Argentina’s debt and a hacker. (WSJ)
House Republicans accused Andrew Cuomo, the former New York governor, of making false statements to Congress about his coronavirus pandemic response. (Politico)
Best of the rest
“What Sank the Tech Tycoon’s ‘Unsinkable’ Yacht?” (NYT)
James Ledbetter, a longtime business journalist who was a top editor at Reuters and Slate, and a DealBook contributor, has died. He was 60. (Talking Biz News)
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