HOT AIR BALLOON FLIGHT

By Julia Horowitz • Tuesday, August 17

Good morning. In today's newsletter: Delta is making US shoppers nervous. Will they still pull out their wallets? Plus, China tech stocks plunge again after regulators in Beijing propose new rules, and the uncertain future for Afghanistan's economy.

 

US stock futures are down after the Dow and S&P 500 notched fresh records Monday. Markets in Europe mostly slid in early trading, following sharp declines in Asia.

 

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ECONOMY MONITOR

Will the Delta variant slow down US shoppers?

 

The Delta variant of the coronavirus is an escalating health concern and poses a big risk to America's economic recovery — especially if it causes shoppers to spend less.

 

What's happening: Investors and economists are closely watching for signs that spending is flagging after consumer sentiment crashed to its lowest level in almost a decade in the University of Michigan's latest survey. Crucial data arrives this week, with earnings from Walmart and Target and the latest dispatch on US retail sales.

 

"The US is no longer the world's leading manufacturer, so market attention is likely to focus on its remaining role as the world's leading consumer. This data will be messy," Paul Donovan, chief economist at UBS Global Wealth Management, told clients.

 

Walmart sent mixed messages Tuesday. Earnings beat Wall Street's estimates, with sales at stores open for at least one year growing more than 5% as the retailer continued to beef up its grocery business. The company also raised its revenue guidance for the fiscal year, with US sales now expected to increase between 5% and 6%. Back in May, Walmart said sales growth would be in the "low single-digits."

 

But the company now forecasts earnings per share of $6.20 to $6.35, after previously estimating an increase in the "high single-digits." Shares are down 1% in premarket trading.

 

Home Depot's stock is also down premarket, tumbling more than 3% after the company indicated that the home improvement boom that lifted its business during the pandemic may be waning. 

 

The company said that comparable sales rose by 4.5%. That's much slower growth than this time last year, when the metric jumped by more than 20%.

 

US retail sales for July, due later Tuesday, could also be cause for concern. Economists polled by Reuters predict that retail sales fell 0.2% after rising 0.6% in June. 

 

This could help: The spending picture is clearly murky. But analysts at Cowen are touting at least one bright spot. They point out that beginning in July, an estimated 39 million US households started receiving monthly bank deposits — the result of the enhanced child tax credit that was part of President Joe Biden's $1.9 trillion stimulus package.

 

"A huge policy change, this is universal basic income for low-middle income parents," Cowen's team said in a recent research report. The investment bank thinks the extra cash could help boost spending. 

VOICES

Huge asset manager will close Manhattan offices

"To accommodate our hybrid workforce, we have taken a diligent look at our real estate footprint in NYC and [are] ensuring that our realty needs are in line with where our employees will be working."

 

STATE STREET

 

Read more from CNN Business.

MARKET FLASH

China tech stocks plunge again as regulators unveil new rules

Fresh regulatory action targeting private businesses in China is jolting tech stocks in Asia again.

 

The latest: China's biggest tech companies lost more than $50 billion in market value Tuesday after Beijing proposed sweeping new rules to further curb anti-competitive behavior among big internet firms, my CNN Business colleague Laura He reports.

 

The State Administration for Market Regulation, which has spearheaded the government's antitrust campaign against Big Tech, said it would forbid business operators from faking stats or information about their orders, sales and user reviews to mislead customers. They would also be banned from fabricating consumer views to hurt rivals' reputations.

 

Other practices targeted include leveraging data or algorithms to redirect web traffic from competitors, and creating obstacles that would prevent customers from installing or running rival services.

 

The regulator also proposed banning a practice known as "choosing one from two," in which companies make exclusive agreements with merchants that prevent them from selling on rival e-commerce platforms. SAMR investigated Alibaba over such issues earlier this year, eventually slapping the company with a record $2.8 billion penalty.

 

Investor insight: Chinese tech stocks — which have plunged during the escalating crackdown over the past nine months — fell further in Hong Kong following the news. Tencent tumbled about 4%, while Alibaba fell 4.8%. JD.com lost 5.2%, and Meituan shed 3.5%.

 

SAMR, which was established in 2018, has dramatically stepped up antitrust scrutiny of the country's tech champions since late last year, when President Xi Jinping called for the reining in of the "disorderly expansion" of private capital.

UP NEXT

US retail sales for July post at 8:30 a.m. ET.

 

Also today: Fed Chair Jerome Powell participates in a town hall at 1:30 p.m. ET.

 

Coming tomorrow: Earnings from Lowe's and Target. 

WHAT WE'RE READING AND WATCHING

▸ Newspaper front pages cover the fall of Afghanistan (CNN Business)
▸ Tesla stock drops on news of safety investigation (CNN Business)
▸ Burry of 'The Big Short' bets against Cathie Wood (Bloomberg)
▸ Baseball card sales keep breaking records (CNN Business)
▸ Roblox wants to rule the metaverse (CNN Business) 
▸ Bitcoin fans are suddenly a political force in Washington (WSJ)

FINAL WORD

Afghanistan faces an uncertain future. So does its economy

Even before the Taliban swiftly seized control of Afghanistan, the country's economic prospects were dim, as decades of conflict blunted business development.

 

See here: As of 2020, an estimated 90% of Afghans were living below the government-determined poverty level of $2 per day, according to a report from the Congressional Research Service published in June.

 

An escalating humanitarian crisis and instability as the Taliban works to consolidate power are only expected to make matters worse.

 

"The country is deeply divided with numerous factions opposed to Taliban control, which leaves civil war and further regional instability a distinct possibility," risk consultancy Verisk Maplecroft said in a report published this week.

 

Watch this space: The future of Afghanistan's economic development could hinge in part on what happens to the country's huge mineral wealth, which US military officials and geologists determined in 2010 was worth nearly $1 trillion.

 

Vast supplies of iron, copper and gold are spread across the country. There is also lithium, a critical mineral in the batteries that power electric vehicles.

 

Getting these resources out of the ground isn't easy, however. RK Equity partner Howard Klein, who advises investors on lithium, said developers will want to avoid an increasingly hostile environment. There's speculation that China, which dominates the mining of rare earth minerals, could try to swoop in, but Klein thinks Beijing is more likely to prioritize other regions first.