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The Recession Watch Is Back On: CEO Daily

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Is Jay Powell fueling Trump’s trade war?

It’s probably not intentional, but by making clear he will cut interest rates to offset the economic costs of a trade war, the Fed chief may have emboldened the nation’s Trade Warrior in Chief.

Trump announced Friday he was imposing a 10% tariff on $300 billion of Chinese goods. That led China on Monday to cut purchases of soybeans and push down the value of the yuan, which led Treasury Secretary Steven Mnuchin later Monday to declare China a currency manipulator. That sort of tit-for-tat retaliation is the very definition of a trade war. No surprise it caused markets to recoil. Morgan Stanley analysts said if the retaliation cycle continues, the economy will be in recession within nine months.

But enter Powell, who made it clear last week he wants the expansion to continue, and he is willing to cut rates further to offset trade-related sluggishness. That could make it possible for the president to pursue his China-bashing agenda without having to pay the economic—and political—price.

That said, Trump and Xi are playing chicken with an aging economic expansion, and the results are unpredictable. Macroeconomic policy is as much about psychology as it is about hard math, and the current situation provides plenty of cause for angst.

“We did not enter this particular trade war with a plan on how to get out,” says Philip Levy, who was an economic advisor to George W. Bush. And so, the recession watch is back on.

As a result, big tech stocks—particularly those dependent on China—took a beating. Apple fell more than 5%; chip maker Nvidia was down 6.5%, while IBM and Adobe were both down more than 4%. Bitcoin provided a haven for skittish investors, rising 14%.

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More news below.

Alan Murray


alan.murray@fortune.com


@alansmurray

TOP NEWS

Trade War Shakes Markets

London’s main stock market was starting the day on the back foot after the U.S.-China trade war escalated on Monday. The FTSE 100 was dropping for its sixth straight session on Tuesday, but the move was moderate compared to Monday, which marked the worst session this year in both the U.K. and the U.S. Stocks in Asia also slipped on Tuesday. Reuters / FT

U.S. Extends Venezuela Sanctions

The Trump administration extended its sanctions program against Venezuela into a total economic embargo—freezing government assets and prohibiting transactions with it. That places Venezuela on par with Iran, North Korea, Syria and Cuba, even as the country drops further into economic and social crisis. That comes after the U.S. acknowledged Juan Guaidó, the leader of the National Assembly, as the official leader of the country earlier this year. WSJ

Disney Reports Earnings

Tuesday will bring quarterly earnings for Walt Disney Co., after the market close. First and second quarter results have exceeded expectations, and shares have jumped by nearly a third this year so far. It will also be a chance to gauge the impact of the studio’s acquisition of Twenty-First Century Fox in March, the new “Star Wars” attractions, and preparations to launch its streaming service, Disney+, later this year. Yahoo

Shopping Bust in the U.K.

In July, the U.K.’s retail sales growth dropped to its slowest rate on record for that month. In the three months to July, the drop was also the sharpest ever recorded. Amid record summer temperatures, it seemed Britons were not going shopping and putting off large purchases, which analysts attributed to wariness about the economic and political situation amid Brexit blues. That will only exacerbate the ongoing struggle for brick and mortar shops to survive on what Brits call the “high street.” The Guardian

AROUND THE WATER COOLER

Tencent’s Universal Stake

Chinese giant Tencent is reportedly negotiating to buy a 10% stake in Universal Music Group—home to artists including Ariana Grande and Drake. Tencent would buy the stake from Vivendi, who would reportedly give the company the chance to purchase another 10% stake afterwards, if the deal goes through. Vivendi has previously said it was looking at selling up to 50% of the music label. WSJ

Does the Walmart CEO Have the Power to End Gun Violence?

Andrew Ross Sorkin, of the New York Times, argues he does—through the power of “economic leverage”, by urging gunmakers to make firearms safer, pushing for background checks, and putting pressure on financial institutions that back gunmakers and retailers. Walmart has already stopped selling handguns and assault rifles. Companies are increasingly under pressure to address gun violence regardless of government policy—on Monday, cloud company Cloudflare cut off 8chan, an online message board where violent views are frequently aired. New York Times

Can 8chan Be Stopped?

After Cloudflare kicked 8chan off its servers on Monday, the site went offline. But experts say it will come back: an 8chan administrator said it has a new security provider, BitMitigate, which bills itself as having a “proven commitment to liberty.” Alternative providers like this are increasingly underpinning the darkest corners of the web. But shortly after moving to BitMitigate, that company’s web services provider dropped them, pushing 8chan offline once again. Fortune / TechCrunch

Google’s Green Effort

Google has pledged to use recycled material in all its products by 2022 and to develop a carbon-neutral shipping program by 2020. The tech giant said it had already begun to use recycled plastic in some devices. It’s not the only one: Samsung has also pledged to adapt its packaging to make it more sustainable. The Verge

This edition of CEO Daily was edited by Katherine Dunn. Find previous editions here, and sign up for other Fortune newsletters here.

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