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MARKETS

• U.S. markets: Stocks recovered from Monday's huge sell-off. Which is good, because the calendar only gets busier from here. Today, the Fed will make its monetary policy announcement and some of the world's biggest companies report quarterly earnings.
• Geopolitics: President Trump revealed his Middle East peace plan at a joint briefing with Israeli Prime Minister Benjamin Netanyahu yesterday. Trump said it offered a road map for a “realistic two-state solution,” but Palestinian President Mahmoud Abbas gave his own review: “a thousand no’s.”

TECH

How Much More Can a $1.4 Trillion Company Grow?

Heading into earnings yesterday, momentum was already in Apple's favor: Shares were up 30% since its last report and over 100% from a year ago.

Unlike The Morning Show, Apple didn't disappoint. Fiscal Q1 revenue rose 9% annually to $91.8 billion—beating most expectations by $3+ billion. Let's dig in.

The goods

CEO Tim Cook pointed to strong performances from iPhone 11s and the Wearables, Home, and Accessories division, which did $10+ billion in quarterly sales for the first time ever. If those numbers are so big to the point of abstraction, here's another: Apple passed 1.5 billion active devices globally.

Wearables specifically were up 44%, Cook said, and over 75% of Apple Watch buyers were first-timers. But the product du jour was AirPods, which Apple can’t make enough of to satisfy demand.

• The company didn't disclose numbers, but one analyst estimates AirPods did as much as $4 billion in Q1.

Big picture: Apple is king and queen of the wearables market.

And the services?

Cook's been refocusing Apple on services, including subscription video, gaming, and payments. Last quarter, the division took in $12.7 billion—a 17% year-over-year increase. The highlights:

• Apple has 418+ million paid subscriptions across its platforms and expects half a billion come March.
• Apple Pay revenue and transactions more than doubled annually.
• Executives said they're using subscriber totals to judge Apple TV+'s success…but stopped short of handing over those digits.

And China

Revenue from Greater China, Apple's second-most important market, rose 3% annually to $13.6 billion.

• About a year ago, Apple cut its sales forecast over fears of lower iPhone demand among Chinese consumers.
• But yesterday, Cook said iPhone revenue grew by double-digits on the mainland in Q1.

Looking ahead...Apple is closely monitoring the coronavirus outbreak, which could hurt sales during the Lunar New Year and impact some of its production as plants remain closed around the country.

TELECOM

Brits Drive on the Other Side of the Huawei

Yesterday, U.K. Prime Minister Boris Johnson said his country would not bar equipment from Chinese telecom giant Huawei in its new 5G mobile network.

• The statement was a major rebuke to President Trump, who wants to prevent Huawei gear from being deployed around the globe.

Johnson didn’t give Huawei free rein. Its involvement in the 5G network will be capped at 35% (roughly its share of Britain’s non-core 4G network). Huawei will also be locked out of the U.K.'s core network as well as sensitive sites like nuclear facilities and military bases.

Zoom out: More countries are getting caught in the U.S.-China crossfire.

• The U.S. insists Huawei equipment represents a national security threat.
• But it’s hard for even American allies to turn down Huawei’s affordable prices and reach. It’s the global leader in telecom equipment, thanks in part to generous subsidies from the Chinese government.

Bottom line: This is one of the U.K.’s “biggest public breaks with Washington in decades,” writes Reuters.

WEALTH

Always Be Polite to Grandfather

If you listen closely, you can hear the Sazeracs clinking. Americans will inherit $764 billion this year, according to a new paper by NYU law professor Lily Batchelder.

• The paper estimates Americans will pay an average tax of 2.1% on that bounty.
• That’s less than a seventh of what Americans pay in taxes on work and savings—an estimated 15.8%.

Batchelder thinks that reflects a broken system. She wants the U.S. to ditch the loophole-happy estate tax, which requires Father Alistair's estate to pay taxes on its gifts to heirs. Instead, Batchelder proposes an inheritance tax, which is levied on young Theodore Vanderfeller III and other ultrawealthy recipients.

• The Tax Policy Center estimates that a tax on inheritances over $500,000 would raise $1.4 trillion over the next 10 years.

Bottom line: Batchelder is a former Obama adviser. The Dems are looking for novel ways to tax the rich to fund progressive priorities.

ECONOMY

Honk if Your Budget Isn't Balanced

The U.S. budget deficit will top $1 trillion this year, according to a new report from the nonpartisan Congressional Budget Office (CBO).

What that means: The government will spend $1.02 trillion more than it collects in 2020. The widening deficit is a result of the 2017 tax cuts and an increase in spending on federal programs.

The historical context: We haven’t seen deficits of this size during periods of low unemployment since World War II, CBO Director Phill Swagel said. Public debt is projected to reach 98% of GDP by 2030—its highest percentage since 1946.

The good news: “The economy is doing well,” Swagel stressed, thanks to strong job growth and consumer spending. The CBO projects GDP will expand at a “solid rate” of 2.2% in 2020.

Which makes the current deficit more concerning; after all, deficits are supposed to shrink in a strong economy. Fed Chair Jerome Powell, who we’ll hear from later today, said last year “the federal budget is on an unsustainable path.”

WORKPLACE

Live Footage of WeWork Tenants

WeWork is phasing out free beer and wine taps at its U.S. and Canada locations, Business Insider reported Monday.

While WeChairman Marcelo Claure has been on a cost-cutting charge for months, WeWork told BI this wasn’t a financial decision.

• The company wants to keep tenants happy during work hours by adding a wider selection of beverages including cold brew, kombucha, seltzer, and cold teas.
• WeWork will continue to offer booze at on-site happy hours.

As former patrons of WeWork’s finest hops dispensers, we’ll be pouring one out tonight for the symbolic end of the OG WeWork era. As Bisnow writes, “alcohol was once a pillar of WeWork’s identity, from bottomless-drink member parties to CEO Adam Neumann’s infamous penchant for shots of tequila.”

WHAT ELSE IS BREWING

• 3M, the conglomerate that makes Scotch tape (and much more), is cutting 1,500 jobs. It missed expectations on both the top and bottom lines last quarter.
• Nike said its online store sold out of items related to Kobe Bryant. Earlier inaccurate reports claimed it had pulled those products.
• The White House told airline execs it might suspend flights from China to the U.S. due to the coronavirus outbreak, CNBC reports.
• Starbucks beat earnings expectations but also said the coronavirus could negatively affect business. The chain has closed more than half of its Chinese stores.
• C-suite shakeups: Match Group CEO Mandy Ginsberg is stepping down months before the company is slated to be spun off. And J.Crew is getting a new boss—former Victoria's Secret exec Jan Singer.

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