U.S. House Passes Bill That Could Ban TikTok Nationwide

The U.S. House of Representatives has passed a bill that could see TikTok banned in America. The bill, if it passes the Senate, would mean ByteDance will have to sell the produce to a non-Chinese – presumably U.S. – company. I’m not particularly interested in the whys and wherefores of this legislation or the company – I haven’t used the app and don’t plan on doing so. I am, however, interested in what it says about the U.S. view of its rival and what it says about where bipartisan decisions are heading on China.

The overwhelming bipartisan support suggests this is not some political point-scoring, but a genuinely held belief that TikTok is a national security risk right now. It's fascinating stuff from both the regulatory and tech side and from the geopolitical angle. When people question what backs the U.S. dollar, I point them towards things like this.

Possible Buyers for TikTok?

Facebook parent Meta might be an obvious one, but you’d think there would be some concerns about antitrust stuff and IMHO Zuck is not a favourite on Capitol Hill. What about Musk? That would be epic, but I just don’t think it can happen. Microsoft could be one to look at, or even a grouping of U.S. tech firms could be assembled.

That would perhaps square some of the antitrust worries – regulations though may take a back seat anyway so that a U.S. company could buy it. How much it sells for is maybe beside the point, valuing it right now under the conditions of a forced sale makes it very tricky. But its reach is incredible, and everyone will want their grubby hands on this prize.

Markets Mixed, Gold Consolidates

Fresh record highs for Paris and Frankfurt this morning as the momentum in European stock markets continues. London was a tad softer in early trading, but holding onto the bulk of the week’s gains, the FTSE 100 index holding clear of the 7,700 level that has been such a ceiling for it.

Wall Street was a little lower on Wednesday with tech shares easing back – the Nasdaq down half a per cent and SP off by 0.2%. These were modest losses against a solid ramp-up all year. Gold is consolidating in what looks like a bull flag at $2,170 having rejected $2,180 yesterday, with the near-term support at $2,150.

Yields are up a bit again with the U.S. 10-year at 4.20%, with the 10-year TIPS rising to 1.9% after bottoming at 1.8% last week.

USD can’t really mount any kind of rally yet – maybe need to see some further gains for Treasury yields and a more risk-off tone. Bitcoin keeps making new highs. PPI inflation is today but it’s hard to see this being more important than the CPI inflation reading earlier in the week which the market pretty well ignored.

Japan to Discuss Ending Negative Rates

A couple of interesting reports out overnight. One, Nikkei reports that the Bank of Japan will actively discuss ending negative rates at its policy meeting next week. The final outcome of wage negotiations is due on Friday, with indications that they have produced the highest increases in at least 25 years.

Sources have indicated that there may be enough in the wage talks to justify a policy shift at its March meeting, though policymakers may choose to wait until April. "The outcome of this year's annual wage negotiation is critical” to deciding on when the BoJ should exit negative rates, Governor Kazuo Ueda told parliament this week.  

USD/JPY is treading water a bit at 147.70, having retreated from the146.50 support level which marked the best for the yen since the start of February.

Japanese government bond yields have risen to multi-week highs though on expectations that the BoJ is about to move. We could be looking at some ructions in debt markets as this unfolds with the repatriation of assets by Japanese investors likely to disturb financial markets a bit – we just don’t really know by how much.

Two, Reuters reports cocoa plants in the Ivory Coast and Ghana have run out of beans – or rather they have idled plants because they cannot afford the beans. This is reflective of market structure dynamics – when supply runs short in poor harvests as we are seeing today, dealers pay farmers a premium to secure beans and sell at the higher spot prices, leaving plants short. Expect chocolate prices to rise and erode demand.

Wells Fargo Downgrades Tesla Stock, McDonalds Shares Fall

Tesla downgraded at Wells Fargo, cut to underweight from equal weight and the price target slashed to $125 from $200, implying roughly 30% downside for the stock. Shares fell more than 4.5%, extending TSLA’s woeful run this year. Analyst Colin Langan writes:

“We see downside risk to volume as price cuts are having a diminishing impact. We see headwinds from disappointing deliveries & more price cuts, which likely drive negative EPS revisions”. 

He notes that Tesla’s growth in core markets has moderated with EU & China flattish in the last 12 months & the US down since Q2. More concerning, he says is the effect of price cuts is moderating with volume up only 3% despite pricing that’s down 5%. “We expect volumes to be flat in 2024 & down in 2025.”

McDonald’s shares were down almost 4% after the CFO saw lower international sales due to the hit from the Middle East conflict and weakness in China. Speaking at the UBS Global Consumer and Retail Conference, Ian Borden warned that international sales would be “slightly lower” in the next quarter. "We continue to deal with the impacts of the war in the Middle East. But we're also seeing what I would call a sluggish start in China this year," he said.