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Stocks Tumble as Growth Concerns Grip Wall Street

Daily Business Briefing

July 8, 2021, 11:57 a.m. ET

July 8, 2021, 11:57 a.m. ET

Stocks fell on Thursday and bond yields dropped as investor anxiety over the bumpy economic recovery rippled through financial markets.

The S&P 500 fell about 1 percent, on track for its biggest decline since at least mid-June, while benchmarks in Europe were down by more than 2 percent. The selling came after stock investors had enjoyed a steady run into record territory in recent weeks: Before Thursday, stocks had fallen only twice in the thirteen previous trading days.

Although the drop marked a sudden shift in sentiment in the stock market, investors in the bond market have been signaling their concerns about the economy for days. Yields on 10-year Treasury notes, a benchmark for borrowing costs across the economy and a measure of sentiment about the outlook for growth, have fallen steadily since late June.

Yields fall when traders buy bonds, something they do when they’re worried about the economy or other factors that could threaten riskier investments. On Thursday the yield fell further, dropping as low as 1.28 percent, a level last seen in early February.

The rise of the highly contagious Delta variant of the coronavirus has served as a reminder that the pandemic remains a threat to both public health and the economy. Though infections and deaths in the United States are near their lowest levels since testing became widely available, on Wednesday, the Centers for Disease Control and Prevention estimated that the Delta variant now accounts for more than half of new infections in the United States.

“There’s growing concern on how robust the economic recovery will be,” said Edward Moya, a senior market analyst at Oanda, a foreign currency exchange. “The virus spread in other countries is starting to suggest we won’t have a strong second half of the year.”

Tourism and travel companies — which are a proxy for investor sentiment about the pandemic — fell on Thursday but recouped some of the worst of their losses as the day went on.

The decline also came as Olympic organizers offered a stark reminder how quickly the pandemic can derail plans — they barred spectators from most events after the declaration of a new state of emergency in Tokyo.

After falling more than 3 percent in early trading, Carnival Corporation and Norwegian Cruise Line were only slightly lower by late morning, while American Airlines was slightly higher.

Ralph Orlowski/Reuters

The European Central Bank said Thursday it would adjust the guideposts it uses to set monetary policy, giving it more room to deploy crisis measures even if inflation rises above its official target. The bank also said it would begin using its clout in bond markets to fight climate change.

After concluding an 18-month review of its strategy, the bank’s Governing Council said Thursday that it would no longer aim to keep inflation below, but close to, 2 percent, its guiding principle since 2003. Rather, the bank would simply aim for 2 percent and be ready to accept “a transitory period in which inflation is moderately above target.”

“Two percent is not a ceiling,” Christine Lagarde, the president of the European Central Bank, said during a news conference Thursday.

The seemingly minor change gives the bank space to keep pumping credit into the eurozone economy even if annual inflation rises above the target, as long as policymakers think the jump is temporary.

That scenario may soon materialize. Inflation in the eurozone has been hovering around 2 percent in recent months, and could rise higher as economies reopen and shortages of needed products like semiconductors become more acute. According to the previous strategy, the central bank would be obligated to raise interest rates or take other measures to slow the economy, even if the crisis was not over.

By law, controlling prices in the 19 countries of the eurozone is the central bank’s main priority, so any adjustment to its approach to inflation has broad implications for the interest rates that businesses and consumers pay on loans, and for employment and economic growth.

The bank also said it would take climate change into account when it buys corporate bonds as part of its stimulus measures. The bond purchases, made with newly created money, are one of the bank’s main tools to stimulate borrowing and economic growth. But in the future, the European Central Bank will favor companies that have made sincere efforts to reduce the amount of carbon dioxide they produce.

In practice, the central bank has already provided ample evidence it was willing to bend its own rules to fight the pandemic, or the debt crisis that nearly destroyed the euro a decade ago.

“The more modern and clearer strategy will make it easier for the E.C.B. to communicate with markets and the public,” Holger Schmieding, chief economist at Berenberg Bank, said in a note to clients. “It enshrines the flexibility which the E.C.B. had granted itself anyway.”

The European Central Bank’s new approach is sure to generate criticism from places like Germany, where fear of inflation runs deep. Jens Weidmann, a member of the Governing Council and president of the Bundesbank, Germany’s central bank, has called for the European Central Bank to begin dialing back its stimulus to ensure that inflation does not get out of control. He has also said that climate change was not a matter for central banks. But Ms. Lagarde said that members approved the new strategy unanimously.

The Governing Council defended its decision to make climate change a task for central banks Thursday, saying it was relevant to “inflation, output, employment, interest rates, investment and productivity; financial stability; and the transmission of monetary policy.”

Stephanie Lecocq/EPA, via Shutterstock

Germany’s three largest carmakers colluded illegally to limit the effectiveness of their emissions technology, leading to higher levels of harmful diesel pollution, European antitrust authorities said Thursday.

Volkswagen and its Porsche and Audi divisions must pay 500 million euros, or $590 million, and BMW will pay 373 million euros, or $442 million, as part of a settlement with the European Commission related to the cartel. Daimler avoided a fine that would have totaled 727 million euros because it blew the whistle on the plot, the European Commission said.

The settlement is another blow to the image of the German automakers, who dominate the high end of the car market but have lost some of their luster after Volkswagen admitted in 2015 that millions of cars it produced were fitted with software designed to dupe official emissions testers.

Daimler and BMW became tainted by the diesel scandal after the European Commission accused them in 2017 of illegally agreeing with Volkswagen on specifications for emissions treatment technology. Those accusations led to the settlement on Thursday.

The European Commission, the European Union’s administrative arm, did not accuse the carmakers of agreeing to deploy illegal technology. Rather, it said that they illegally agreed to deploy emissions technology that met minimum legal standards but was not as good as it could have been.

Among other things, the carmakers agreed to limit the size of the tanks used to hold a chemical, known as AdBlue, that neutralizes harmful nitrogen oxides in diesel emissions, the commission said. Larger tanks would have done a better job reducing pollution but taken space that companies preferred to use for audio speakers or other amenities.

“For over five years, the car manufacturers deliberately avoided to compete on cleaning better than what was required by E.U. emission standards,” Margrethe Vestager, the European Union’s competition commissioner, said in a statement. “And they did it despite the relevant technology being available.”

Volkswagen has since paid well over $20 billion in fines and legal settlements related to its diesel emissions cheating. Daimler admitted last year that its Mercedes-Benz cars were also programmed to cheat on admissions tests and paid $2.2 billion as part of a settlement with United States authorities. Sales of diesel vehicles, which once accounted for more than half of the new cars sold in Europe, have plummeted.

BMW portrayed the settlement as a vindication because it did not accuse the company of emissions cheating, which it has consistently denied. The fine was lower than expected, freeing up 1 billion euros BMW had set aside to cover penalties related to the cartel case.

“Unlike some of its competitors, the BMW Group never considered reduced, illegal emission control,” the company said in a statement. Discussion with the other carmakers “had no influence whatsoever on the company’s product decisions,” BMW said.

Daimler noted that it cooperated with the investigation. “The European Commission explicitly found no evidence that there was any agreement regarding the use of prohibited defeat devices,” the company said in a statement.

Volkswagen agreed to the settlement but said it was considering appealing some aspects of it, which is permitted under European Union law.

“The commission is breaking new legal ground with this decision, because it is the first time it has prosecuted technical cooperation as an antitrust violation,” Volkswagen said in a statement. “It is also imposing fines even though the contents of the talks were never implemented and customers were therefore never harmed.”

Broken glass on doors leading to the Capitol Rotunda after the Jan. 6 attack. The Lincoln Project’s new campaign could offer the group a way to rebrand itself after internal disputes.
Erin Schaff/The New York Times

The Lincoln Project, a group focused on antagonizing President Donald J. Trump during his re-election bid, is targeting corporations linked to Republicans who disputed the 2020 presidential vote and played down the attack on the U.S. Capitol on Jan. 6.

The group said on Thursday that it would start the campaign with television and online ads directed at Toyota, which it accused of donating $55,000 to 37 Republican Congress members who resisted certification of the 2020 election results.

The Lincoln Project, known for its scathing anti-Trump videos and memes during the 2020 campaign, said it planned to release more ads in the following weeks naming companies that “have broken their pledges to withhold campaign funds to members of Congress who enabled, empowered, and emboldened former President Trump and the insurrectionists.”

The first spot includes footage of a vehicle crash test interspersed with images of the Jan. 6 riot. A narrator warns Toyota executives that “if they don’t reconsider where they send their money, Americans will reconsider where we send ours.”

Toyota did not immediately provide a comment.

The ads are set to run online in the same markets as Toyota’s top 20 dealerships and locally on Fox Business and CNBC in New York and in Plano, Tex., where Toyota’s American operations are based. The Lincoln Project said that Comcast refused to air the commercial in Washington; Comcast did not immediately provide a comment.

“The Lincoln Project will not sit by and watch as companies like Toyota — companies that have benefited from America’s economic strength and freedom — give money to politicians who are working to overthrow that same system,” Reed Galen, one of the group’s co-founders, said in a statement.

Founded by Republican consultants opposed to Mr. Trump, the group started as a super PAC in 2019. Later, the co-founders sought to parlay the Lincoln Project’s popularity into a broader media enterprise, setting off internal disputes as it experimented with a new tone for the Biden administration.

The campaign targeting Toyota and other companies could offer the group a way to rebrand itself. Earlier this year, the Lincoln Project grappled with allegations that John Weaver, a co-founder, had harassed young men with sexually provocative messages for years. In June, the Lincoln Project said that an independent investigation had found that its leadership was unaware of the accusations against Mr. Weaver until they were made public.

  • Initial claims for state jobless benefits rose slightly last week, the Labor Department reported Thursday.

  • The weekly figure was about 370,000, up 3,000 from the previous week. New claims for Pandemic Unemployment Assistance, a federally funded program for jobless freelancers, gig workers and others who do not ordinarily qualify for state benefits, totaled 99,000, down 15,000 from the week before. The figures are not seasonally adjusted. (On a seasonally adjusted basis, state claims totaled 373,000, an increase of 2,000.)

  • New state claims remain high by historical standards but are one-third the level recorded in early January. The benefit filings, something of a proxy for layoffs, have receded as businesses return to fuller operations, particularly in hard-hit industries like leisure and hospitality.

  • More than 20 states have recently discontinued some or all federal pandemic unemployment benefits — including a $300 supplement to other benefits — even though they are funded through September. Officials in those states said the payments were keeping people from seeking work.

  • The Labor Department’s employment report for June showed that the economy had 6.8 million fewer jobs than before the pandemic. A separate report found 9.2 million job openings at the end of May as businesses that had closed or cut back during the pandemic raced to hire employees to meet the reviving demand.

  • But there is a substantial amount of turnover, with far more workers quitting their jobs than are being laid off — a sign that many are jumping to positions that pay even slightly more.

Lina Khan, the chair of the Federal Trade Commission. Amazon has argued that her views against Big Tech should disqualify her from participating in actions against the company.
Pool photo by Graeme Jennings

Last week, Amazon fired a pre-emptive shot at the new chair of the Federal Trade Commission, Lina Khan, using a common line of attack on policymakers who held strong opinions in the past: trying to disqualify them for alleged bias.

Ms. Khan made her name with a forceful view on Amazon and antitrust, arguing that the sprawling tech giant showed how competition law was “unequipped” for the digital age. This, among other things, disqualifies Ms. Khan from participating in F.T.C. actions against Amazon, the company said. Amazon is a subject of the F.T.C.’s inquiry into Big Tech’s acquisitions of smaller rivals, and the agency is separately reviewing its proposed purchase of MGM.

So, the DealBook newsletter asks, does Amazon have a chance?

Disqualifying a commissioner isn’t easy. At her Senate confirmation hearing, Ms. Khan rejected the idea of a blanket disqualification from Big Tech investigations, saying she would consider such requests on a case-by-case basis and consult with F.T.C. counsel. Simply voicing opinions critical of companies is rarely cause for recusal, and most disqualification attempts fail.

  • Impartial “does not mean uninformed, unthinking, or inarticulate,” explained a federal appeals court in 1980, reversing the disqualification of an F.T.C. commissioner.

  • In 2010, Intel’s attempt to disqualify a commissioner who had previously been its antitrust counsel failed because the F.T.C. said his previous work bore no “substantial relationship” to the review at issue.

  • In 2012, a prospective commissioner who had worked for Google promised senators that he would recuse himself from Google-related cases for two years to avoid the appearance of impropriety. That is a point Amazon stressed in its motion — that the appearance of fairness matters, too.

Amazon’s filing may be “a warning shot,” said Bruce Hoffman, a partner at Cleary Gottlieb and the former director of the F.T.C.’s competition bureau. Because it isn’t attached to a case and aims to recuse Ms. Khan broadly, it essentially serves as a notice to the agency. It could be Amazon’s way of saying, “if you participate, this could haunt you,” he said.

Commissioners are chosen for their policy views, as well as their expertise, so many would be disqualified if having opinions was disqualifying, said the antitrust law scholar Eleanor Fox, Ms. Khan’s former colleague at Columbia. Asked whether Amazon’s motion would succeed in blocking Ms. Khan, she replied: “Oh, I don’t think so.”

President Biden drives an all-electric Ford F-150 in May. He is considering proposals to force automakers to shift to electric vehicles.
Doug Mills/The New York Times

President Biden’s goal of cutting pollution by 50 percent from 2005 levels by 2030 would require a radical transformation of the nation’s economy away from fossil fuels, including a rapid shift by American drivers from internal combustion engines of the last century to zero-emissions electric vehicles.

To help meet that goal, the Biden administration is starting to write stringent auto pollution rules that could cut emissions deeply and force carmakers to increase sales of electric vehicles, according to four people familiar with the plan. That’s in addition to plans to restore tailpipe emissions standards to roughly the level set by President Barack Obama, Coral Davenport reports for The New York Times.

The risk for automakers is whether consumers will purchase electric vehicles that are generally more expensive and logistically challenging, because the nation lacks a network of electric-vehicle charging stations.

If Congress approves hundreds of billions of dollars for construction of charging stations as well as tax incentives for both buyers and makers of electric cars and trucks, Mr. Biden would most likely be able to secure industry support for more stringent rules that would result in more electric vehicles on the road. Currently, only about 2 percent of vehicles sold in the United States are electric.

But if a final infrastructure package includes little or no spending on electric vehicles, a tougher tailpipe rule would likely face opposition from automakers, who would be forced to build and try to sell costly electric cars.

Mr. Biden announced in late June that he had reached a deal with a bipartisan group of senators on an infrastructure package that would include about $7 billion of spending to build electric vehicle charging stations.

But that is barely a fraction of the $174 billion that Mr. Biden wants to spend on vehicle electrification in a second infrastructure bill this fall, which Democrats hope will include robust provisions to fund 500,000 electric vehicle charging stations and generous tax rebates for purchasers of electric vehicles. Neither bill is guaranteed to pass in the closely divided Congress.

Google’s European headquarters in Dublin span four buildings, featuring a wellness center and a swimming pool.
Paulo Nunes dos Santos for The New York Times

The model that has fueled Ireland’s economy for decades is in peril, as a coalition of 130 nations works to overhaul a global tax system that Ireland depends on to lure businesses looking to reduce the taxes they pay.

At stake is Ireland’s low official corporate tax rate of 12.5 percent and a tax regime that helps global companies based there avoid paying taxes to other countries where they make profits, a setup that has put billions of euros into Ireland’s tax coffers and created hundreds of thousands of jobs, Liz Alderman reports for The New York Times.

Ireland was one of only nine countries not to sign on to a sweeping framework last week, overseen by the Organization for Economic Cooperation and Development, that could undermine those advantages. The accord would impose a new 15 percent global minimum corporate tax rate and force technology and retail giants to pay taxes where their goods or services were sold, rather than where the company had its headquarters. The details of the agreement are expected to be completed in October, and then each country’s government would need to adopt it.

Some might say the optics aren’t good — Ireland risks looking as if it wants to deprive other countries of their fair share of tax revenue — and the government in Dublin has been grudging in its statements on the issue. The finance ministry declined interview requests and did not respond to written questions. Similarly, multinational companies that have profited from the low-tax regime have been conspicuously silent, declining requests to discuss the issue.

An overhaul of the global tax order could cost Ireland 2 billion to 3 billion euros annually in lost tax revenue, the finance ministry estimates. Much of that money would go to other countries.

Overall, the Irish government hauled in €12 billion in corporate taxes last year, up from €4 billion seven years ago. Over half of the take came from the 10 largest multinationals.

  • A group of dozens of states and the District of Columbia are suing Google on claims that its mobile app store abuses its market power, expanding the legal challenges facing the internet search giant. The suit would be the fourth state or federal antitrust lawsuit filed against Google since October, but the first to scrutinize the company’s lucrative app store. It was being filed on Wednesday in federal court in the Northern District of California, according to a public filing, which showed the suit was being led by Utah, North Carolina, New York and Tennessee. Apple, which operates the other major app store for smartphones, is also under scrutiny for the cut it takes from developers for app sales and subscriptions.

  • If over the next two years Bill Gates and Melinda French Gates can’t find a way to work together at their foundation following their planned divorce, Mr. Gates will get full custody. That was one of the most important takeaways from a series of announcements about the future of the world’s largest charitable foundation made on Wednesday, overshadowing an injection of $15 billion in resources. The foundation also plans to add trustees outside their close circle, a step toward better governance that philanthropy experts had urged for years. The restructuring announced Wednesday could begin the process of making the Gates Foundation more responsive to the people its mission aims to help and loosen the grip on the reins that its founders have held for more than two decades.

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