The daily business briefing: August 13, 2019
Bolton says the U.S. is ready to negotiate a post-Brexit deal, trade tensions and Hong Kong protests continue to rattle markets, and more
Bolton says U.S. ready to discuss post-Brexit trade deal
National Security Adviser John Bolton said Monday that the U.S. is ready to negotiate a post-Brexit trade deal with Britain. Bolton said after meeting with the new British prime minister, Boris Johnson, in London that the U.S. and the U.K. could pull together an agreement "in pieces" to get it done faster as Britain pushes to exit the European Union on October 31. "I think here we see the importance and urgency of doing as much as we can agree on as rapidly as possible," Bolton said. Bolton added that the two allies could start with areas where they could agree easily, and move on from there, with touchy topics such as U.S. sanctions on Iran and a ban of Chinese tech giant Huawei delayed until after the U.K.-EU divorce.
Trade war, Hong Kong tensions drag down stocks
U.S. stocks plunged on Monday, with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq all dropping by 1.2 percent or more as the U.S.-China trade war continued to stoke fears of a global economic slowdown. "Trade and the concern that as this escalates it continues to wear on confidence to a point that this actually causes a recession, that's what people are wrestling with," said Ben Phillips, chief investment officer at EventShares. U.S. stock index futures fell further early Tuesday as ongoing protests in Hong Kong and a crashing Argentine peso drove investors to the relative safety of U.S. bonds, gold, and the Japanese yen. Futures for the Dow and the S&P 500 were down by 0.2 percent, while those of the Nasdaq fell by 0.3 percent.
Federal deficit increases by 27 percent
The Treasury Department reported on Monday that the U.S. budget deficit grew to $867 billion for the first 10 months of the fiscal year, an increase of 27 percent compared to this time in 2018. The deficit for fiscal year 2018 was $779 billion. The fiscal year ends on September 30, and the White House's Office of Management and Budget predicts by that point, the deficit will reach $1 trillion for the year. Experts say the 2017 Republican tax plan, which included $1.5 trillion in tax cuts, is one reason why the deficit is growing so much. Spending is also up, and while tax revenue increased by 3 percent since October 1, federal spending is up 8 percent. Spending is only going to continue to increase, as a two-year budget deal signed into law by President Trump this month will raise spending by $320 billion.
Verizon to sell Tumblr to WordPress owner Automattic
Verizon has agreed to sell its blogging platform Tumblr to WordPress owner Automattic Inc. at a huge loss. Verizon got Tumblr as part of its 2017 acquisition of Yahoo, which bought Tumblr in 2013 for $1.1 billion. Axios said one source familiar with the deal put the price under the new deal "well below" $20 million, while another said it was less than $10 million. Still, the acquisition is Automattic's biggest ever. Tumblr's roughly 200 staffers reportedly will make the switch to work for the new owner. Tumblr is not profitable but it hosts more than 450 million blogs. Tumblr lost some users last year when Verizon banned adult content. Automattic chief executive Matt Mullenweg said that ban would stay but no new changes were coming.
Morgan Stanley predicts Fed rate cuts in September, October
Morgan Stanley analysts said Monday they expect the Federal Reserve to cut interest rates further in September and October as trade tensions cast a cloud on the economy. "Trade's 'simmer' has begun to boil, business sentiment and capex (capital expenditures) have softened further, global growth remains weak, and inflation expectations have fallen," the investment bank's analysts wrote in a note to clients. Previously, Morgan Stanley experts were forecasting just an October cut, predicting the U.S. central bank would "wait for further evidence that downside risks are weighing on the economy" before stepping up the pace of rate cuts and other policies intended to provide an economic boost. Goldman Sachs recently said it considered September and October rate cuts likely.