The worst hasn't arrived yet
Wall Street was waiting worriedly for the latest quarterly results from Amazon and Apple.
Answer: Not that bad. But the coming quarters could be even more troubling, indicating that even the most powerful companies are not immune to attacks on Trump's global commercial.
Highlights:
Apple surpassed analyst expectations in the most recent quarter, earning $24.788 billion in profits and $953.6 billion in sales.
Amazon has cleaned up past Wall Street forecasts, operating profit of $18.4 billion and revenue of $155.7 billion.
Apple CEO Tim Cook steadily climbs concerns over the quarterly tariffs that were just announced, but the company said it had seen no indication that customers would move forward with buying their iPhones in case taxes force the company to raise prices. Amazon didn't mention that the company's CEO Andy Jassy said he had “increased buying” for certain products.
The future looks tough. Cook warned that despite a tariff exemption on Chinese-made iPhones, his company could face $900 million in the quarter due to import duties, despite winning after Trump's personal lobbying. This assumes that the new rates are not in the picture. (Fun fact: The word “customers” rose 27 times during a revenue call with Apple analysts.)
Jussy acknowledged the uncertainty and told analysts, “Obviously, none of us know exactly where the tariffs will settle, or when and where.” (Number of customs words from call: 17.)
Other operations face pressure. Apple's services division often outsells devices. However, a federal judge recently ordered the company to stop collecting commissions from selling several apps, a compelling decision by Apple. And if the Department of Justice persuades a federal judge to impose a stiff antitrust law on search giants, they could lose some of the $20 billion annual payments that Google would make Safari browser's default search engine.
Meanwhile, Amazon's cloud computing division, a key business for the company, is slightly below Wall Street expectations and lags behind Microsoft's. Some analysts are also worried that advertising, an increasingly important source of income, could face pressure from tariffs.
Companies are taking steps to ease the blow from tariffs. Cook said the “many” of iPhones for sale in the US during the current quarter will come from India rather than China. Other products, such as the iPad, are made in Vietnam.
And Jassy said Amazon is “pretty maniac-focused” in avoiding a big price hike by buying additional stock and helping sellers in that market do the same. That said, some merchants are testing how much they can raise prices without being punished by Amazon, the Wall Street Journal reports.
Wall Street remains cautious, with stocks in both companies being low in pre-market trading. Apple didn't have to raise prices, so it's going well for now, Ben Bajarin of Creative Strategys, a high-tech research firm, told The Times. But he added, “The question is, what will happen if more tariffs hit?”
And Gil Luria of research firm Da Davidson warned that shareholders could “be a bit disappointed with margins and margin guidance, which could create concerns about the absorption of tariff costs.”
Dealbook wants to hear from you
I'd like to know how tariffs are affecting your business. Have you changed your supplier? A low price negotiated? Have you suspended your investments and employment? Have you planned to move manufacturing to the US? Or did the tariffs help your business? Please tell me what you are doing.
This is what's going on
Cryptocurrency has brought the Trump conflict into the spotlight. State-backed Emirati artificial intelligence giant MGX said it will use USD1, a Trump-affiliated stubcoin, to make a $2 billion investment in crypto exchange Binance. The deal could generate hundreds of millions of dollars for the Trump people, raising more concerns about the contradictory relationship with the president's code. Sen. Elizabeth Warren, a Democrat of Massachusetts, cited the news that he condemned the proposed ridiculous law that “makes it easier for the president and his family to line up in their own pockets.”
Microsoft will drop long-time legal counsel for those fighting Trump. Simpson Tacher & Bartlett's lawyers – who agreed to donate $125 million in pro bono services to a Trump-eating cause last month – has stepped down from representing the tech giant in a lawsuit related to the acquisition of Activision Blizzard. They have been replaced by lawyers at Jenner & Brock. Jenner & Block is being sued to block executive orders targeting the company. The reason is unclear, but it is a sign that opposing Trump doesn't necessarily cost law firm operations.
Kohl's fires CEO to send business to romantic partners. The retailer said it has rejected Ashley Buchanan, who has been in the role since November. The Wall Street Journal reports that Buchanan had signed a multi-million dollar consulting agreement with the Boston Consulting Group on Kohl's signature.
What to see in Friday's employment report?
The labour market is in Autopilot, employers employ employment, and employment has been shaking for about five years. That streak is expected to follow Friday's employment report, but many economists are predicting complications as businesses support more fallout from President Trump's trade war.
Lighter than expected readings, especially after Wednesday's Tepid Inflation Report and Lousy GDP report, could Wall Street bolster the call as the Fed drops quickly. Economists and traders believe interest rate cuts in May are unlikely, but central banks will be under more pressure if Friday numbers are particularly soft.
What to expect: Employment probably increased by around 135,000 in April, a sharp decline from the 228,000 added in March, with economists voted by fact set estimates. This has made the unemployment rate stable at 4.2%. Wage growth has changed little from previous reports and is expected to grow again at a clip of 0.3% on a three-month rolling average.
(It may take months for the federal job losses driven by Elon Musk's so-called government efficiency to begin to appear in reports.)
I was worried about recent economic data. ADP's private pay report on Wednesday showed a slower hiring. There is a tendency to be inconsistency between the ADP report and the Labor Bureau of Statistics, but elsewhere, apparent from Thursday's ISM manufacturing data, suggests a rough patch for the future.
In a research note on Thursday, Oxford Economics American economist Matthew Martin predicts manufacturing advancement forecasts, turning towards layoffs, to hire economic environments, moving away from controlling costs from hiring and attrition.
The real Doucy could come next month. It hopes economists will see fallout from Trump's trade war, and that his crackdown on immigration is digging into jobs. “The more likely it is to have a tariff-related layoff, the more likely it is to have a tariff-related layoff,” Citigroup economist Veronica Clark said this week.
A $10 T-shirt could cost $24.50
American shoppers looking to buy cheap T-shirts and pairs of shoes at Shane are shocked at check-out. On Friday, Trump ended shipping rules that have supported the explosion of e-commerce and the disruption of traditional retail business models. Due to tax exemptions, packages from China, worth less than $800, come in US tariff-free.
Popular Chinese shopping apps Shein and Temu relied on the so-called De Minimis loophole. They're already raising prices for change.
Calls for reform before President Trump. But as Daniel Kay writes in his dealbook, his development wings the confusion not only for the first fashion giant but also for e-commerce sellers of all sizes.
In Trump's view, de Minimis is “scam.” He said this week it would hurt small businesses. The president also said the exemption should be ended as a way to stop the flow of fentanyl. Trump tried to start taxing low-value Chinese products in February, but he retreated the change after causing a stack of packages at the border.
He's trying again, but this time he might stick.
Neither Democrats nor Republicans like exemptions. Last fall, the Biden administration cited similar concerns when introducing plans to reduce these low-cost shipments. It also says traditional retailers who send large quantities of shipments to US warehouses have long lamented the rules and put them at a disadvantage. According to Nomura's estimates, the company offered a $46 billion package based on the regulations.
The first fashion giant is in the spotlight. Shein and Temu have become shopping giants thanks to the exemption. Their customers have become accustomed to discounts and speed, including $15 clothing, shoes, toys and household items. Shein and Temu generate gross sales well over $100 billion.
Amazon reportedly considered following these e-commerce sites' leads by itemizing tariff costs on prices when it sparked Trump's rage. Temu has begun detailing the costs that tariffs add to the purchase, but Shein warns that “the tariffs are included in the price they pay.”
However, minimal terminations are not necessarily existential for these companies. It may just mean a change in the supply chain. According to a report by the Financial Times, they are already beginning to diversify by working with US-based sellers, and Shein is considering shifting production outside of China.
It's more than just a major player. Many people who sell on sites like Etsy, Ebay, Shopify and more rely heavily on De Minimis' tax exemption.
Kelly Kendall, who runs the craft supplies business in the Chicago area, imports most of her products directly from China – in tax-free, through de minimis. She uses these materials to create kits for sale on Etsy. Now her business model is in the air. “I don't think people really understand the greater impact for small businesses,” Kendall said.
This does not affect US businesses only. The new tax applies to all products made in China, even if they are indirectly shipped to the US. Some Canadian vendors selling Chinese-made products say they are trying to adapt to minimal changes and build a Canadian customer base.
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Best remaining
Economists show that the frontal rotation of tariffs not only distorted GDP numbers, it also shows an actual slowdown in growth. (Apricitas Economics)
Bill Belichick's relationship with Jordon Hudson was the feed on gossip sites. But it was also a deal with HBO, the soccer team he coaches. (Athletic)
“Trump wants a new air force, so he is renovating a Qatar plane” (WSJ)
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