This year’s stock gains are wiped out

Good Thursday morning and welcome to today's DealBook Briefing. Thasunda Duckett of JPMorgan Chase, Nancy Dubuc of Vice Media, Damien Hooper-Campbell of eBay and John Hope Bryant of Operation Hope will all be speaking at our “Playing for the Long Term” conference on Nov. 1 at Jazz at Lincoln Center in Manhattan. Register to attend. (Want this by email? Sign up here.)

Markets enter negative territory for the year 

The stock markets fell again yesterday, with the S.&P. 500 shedding 3 percent — meaning that it has erased its gains for the year. The tech-heavy Nasdaq fared worse, losing 4.4 percent, as semiconductor stocks endured some of the biggest sell-offs of the day. Overnight, Asian stocks followed America’s lead.

Matt Phillips of the NYT explains what’s driving the rout:

Instead of celebrating quarterly profit and sales numbers that have largely lived up to expectations, investors have zeroed in on potential risks to the economic and corporate profit outlook for the coming year. Rising commodity costs tied to tariffs on imports, expectations that the Federal Reserve will keep raising interest rates, and an economic slowdown in China could all start to bite. And that’s on top of investors’ anxiety about what the midterm elections could mean for their portfolios.

The drops will ruin one of President Trump’s favorite talking points — that his policies have helped buoy the markets — going into the midterms. And they erased $33 billion from the net worth of the 61 richest tech leaders.

This could start a major shift in the way that investors allocate their assets. Or, as Mohamed El-Erian, the chief economic adviser to Allianz, argues in the FT, the volatility may just be part of the markets learning to live without support from central banks.

Either way, optimists may find solace in U.S. futures markets trading up slightly this morning, which hints at a brighter start for the day.

China listens in on Trump’s calls to help it shape trade strategy 

President Trump is known for making unsecured phone calls to associates, despite warnings that foreign powers can eavesdrop on them. Now the NYT reports that China has been tapping those calls to help limit the trade fight between Washington and Beijing.

More from Matt Rosenberg and Maggie Haberman of the NYT:

China’s effort is a 21st-century version of what officials there have been doing for many decades, which is trying to influence American leaders by cultivating an informal network of prominent businesspeople and academics who can be sold on ideas and policy prescriptions and then carry them to the White House. The difference now is that China, through its eavesdropping on Mr. Trump’s calls, has a far clearer idea of who carries the most influence with the president, and what arguments tend to work.

Combined with the eavesdropping is a lobbying effort by Beijing involving close Trump friends like Steve Schwarzman of the Blackstone Group and Steve Wynn, the former casino magnate. One U.S. official told the NYT that the Chinese were pushing for those friends to persuade Mr. Trump to sit down with President Xi Jinping of China as often as possible.

Tesla reports its biggest-ever profits 

Elon Musk’s automaker caught a much-needed break: Yesterday it reported its first quarterly profit in two years, and its biggest ever. As Neal E. Boudette of the NYT writes, that was helped along by “cost-cutting, spending less on future models, delaying payments to suppliers and, most important, rushing to sell as many cars as possible.”

The good news saw the company’s stocks surge to levels last seen in mid-August when Mr. Musk tried (briefly) to take the company private.

The profit will help stabilize Tesla’s finances. But the question now is whether the automaker can continue this success. It has struggled to deliver cars to customers, and it hasn’t yet rolled out its long-promised $35,000 Model 3. More from Mr. Boudette on what could yet happen:

If sales falter, the company could quickly find itself in a financial squeeze. It has to make bond payments of $230 million in November and $920 million in March. It can use stock for the second payment but only if its share price is above $360. At the same time, Tesla hopes to build a factory in China, which will require hundreds of millions of dollars in capital expenses.

More auto news: In contrast to Tesla, Ford reported lower profitsyesterday, as sales fell in Europe and China, and costs rose because of tariffs.

Coming up 

Tech giants release earnings. Analysts expect Amazon to report a rise in sales driven by cloud computing, while they anticipate Google to announce rising revenue and profit driven by strong ad sales. Investors will watch Twitter to see if its monthly user numbers continued to decline.

The European Central Bank discusses monetary policy. The bank’s governing council is expected to continue slowly winding down its post-crisis measures. But the meeting takes place against Italy’s budget standoff and continuing trade wars, and the central bank’s president may give a cautious assessment of the future of the eurozone economy.

New York sues Exxon Mobil over climate change 

The state’s attorney general filed a lawsuit against Exxon Mobil yesterday, arguing that the oil giant defrauded investors by playing down the risks of climate change.

The suit, built on three years of investigations, does not charge the company with creating climate change. But it claims that the company essentially kept two sets of books when accounting for the effects of global warming: publicly, it claimed to be ready for stringent regulations, while internally it discounted potential costs of climate policies, prosecutors said. Executives as senior as Rex Tillerson, the former Exxon C.E.O. who later became President Trump’s secretary of state, “knew for years” about the practice, the complaint said.

An Exxon spokesman dismissed the lawsuit as “baseless.” But as the NYT points out, New York attorneys general have had success bringing shareholder fraud lawsuits before, aided by the state’s sweeping Martin Act.

At stake isn’t just hundreds of millions of dollars in punishment, but also a reputation that Exxon has tried to shape as a global leader on climate change issues.

More climate news: Amalgamated Bank started tracking the carbon emissions of projects it lends money to, and is creating a system that would let other North American banks follow suit.

Uber wants to be the “Amazon of transportation” 

The company is already the biggest player in the ride-hailing market. But, as it prepares for an I.P.O. next year, Uber is pointing out that its ambitions are much bigger. Its C.E.O., Dara Khosrowshahi, said at an FT conference Monday that it wants to have a role in how anything — people or goods — moves from A to B.

That starts with cars, said Mr. Khosrowshahi: “If there’s one big goal for Uber, it’s to replace car ownership.” But Uber is also betting on bike and scooter rentals, food delivery, aircraft, and drones. The goal, he said, is to develop four or five multibillion-dollar businesses.

That will come at a cost. Uber is at least a few years away from making money on ride-hailing, and investing in new technologies will require more cash. The company says revenue from mature markets is helping cover costs elsewhere, but prospective investors in its forthcoming I.P.O. will decide if that’s enough to make a bet on its vision.

Saudi crown prince pledges justice for Khashoggi killing 

Crown Prince Mohammed bin Salman of Saudi Arabia, in his first public remarks about the death of Jamal Khashoggi, called the journalist’s killing “hideous.”

The remarks by Prince Mohammed came at the Future Investment Initiative conference in Riyadh that he is hosting. The event itself remained low-key yesterday, with only a handful of prominent Western business executives willing to enter the spotlight. (Among them: Eric Cantor of the investment bank Moelis & Company — and a former House majority leader — and David McKillips of the theme park operator Six Flags.)

The big question remains whether the Trump administration will continue to stand by Prince Mohammed. All eyes are on Gina Haspel, the C.I.A.’s chief, who is returning to the U.S. from Istanbul, where she met with Turkish officials to review their purported evidence about the Saudis’ role in Mr. Khashoggi’s death. What she relays to Mr. Trump could shape his response.

Revolving door 

• Wells Fargo suspended its auditing chief, David Julian, and its chief administrative officer, Hope Hardison, amid a regulatory review of sales practices.
• Snap hired Jeremi Gorman from Amazon as its new chief business officer, and Jared Grusd from HuffPost as its new strategy chief.
• Kelly Johnston, the Campbell Soup executive who promoted a conspiracy theory about George Soros, is leaving the company next month.
• Kelly Coffey, who stepped down as JPMorgan Chase’s U.S. private bank, will become City National’s next C.E.O.

The speed read 

Deals

• Janet Yellen, the former Fed chairwoman, said she’s alarmed by loosening standards for corporate lending. (FT)
• FIFA members are scheduled to vote tomorrow on whether to back a $25 billion SoftBank-sponsored plan to create two new major soccer tournaments. (FT)
• Neiman Marcus has reportedly begun talks to restructure its $4.7 billion in debt in order to avoid bankruptcy. (WSJ)
• The former C.E.O. of Forest City Realty Trust is said to oppose the real estate company’s sale to Brookfield Asset Management. (WSJ)
• Investors are piling into food-delivery start-ups. (WSJ)

Politics and policy

• Pipe bombs were sent to prominent Democratic figures, including Barack Obama and Hillary Clinton, as well as the New York offices of CNN. (NYT)
• Why President Trump’s public bashing of the Fed actually makes it harder to keep interest rates low. (WSJ)
• Here’s how Republicans would act on Mr. Trump’s pledge for a new middle-class tax cut if they hold onto both houses of Congress. (NYT)
• Prime Minister Theresa May of Britain appears to have avoided a leadership challenge over her Brexit negotiating strategy, for now. (Bloomberg)
• The U.S. warned Britain against partnering with a Chinese company on the construction of nuclear power plants. (FT)

Trade

• President Trump criticized Harley-Davidson over its response to his tariffs, but the motorcycle maker isn’t saying whether those attacks hurt sales. (DealBook)
• Mr. Trump played down the scale of his tariffs in an interview with the WSJ, so the newspaper made a list of the ones he’s introduced so far.
• The Fed’s latest beige book points to growing concerns about the impact of tariffs. (WSJ)

Tech

• Facebook continues its push into developing markets — but has it learned from its latest scandals? (Bloomberg)
• Facebook’s former security chief, Alex Stamos, called on Apple to “come clean” about its privacy standards for Chinese users, which he said weren’t as high as in other parts of the world. (CNBC)
• Some experts are quitting Alphabet’s smart-city project in Toronto because of privacy concerns. (MIT Technology Review)
• How millions of people in 233 countries think autonomous cars should act in life-or-death situations. (MIT Technology Review)
• Yahoo agreed to pay a $50 million settlement to about 200 million people affected by a 2013 data breach. (Fortune)
• An earnings roundup: Microsoft’s cloud strategy is paying off, but AMD’s weakening graphics and crypto sales caused its stocks to plunge.

Best of the rest

• The NBC host Megyn Kelly has been heavily criticized for making racially insensitive remarks on air, and may lose her show over the debacle.
• The Bank of Canada raised interest rates and hinted that it plans to remove monetary stimulus from the economy. (Bloomberg)
• How shipping will change as polar ice melts. (WSJ)
• What went wrong with the world’s recycling industry. (FT)
• Rodrigo Rato is set to be jailed for credit card fraud committed when he ran the Spanish lender Bankia. (NYT)
• The mystery of the murdered pharma C.E.O. (Bloomberg)
• Why Kit Kats are so popular in Japan. (NYT)

Thanks for reading! We’ll see you tomorrow.

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