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MARKETS

• Fed watch: Chair Jerome Powell said the case for a rate cut has strengthened given trade uncertainty and inflation worries. Worth noting? Powell stopped short of promising a cut at the Fed’s July meet and greet.
• U.S. markets: Gold soared to a nearly six-year high and equities stumbled as U.S.-Iran tensions sent investors to the comfort of safe haven assets.
• Not helping stocks: U.S. consumer confidence fell to a 21-month low in June.

SHIPPING

What FedEx Isn't...

A “law enforcement agency,” according to a suit the shipping company filed against the U.S. Commerce Department this week.

What inspired such soul-searching? FedEx (-3.03%) claims it shouldn’t be held liable for unknowingly shipping products that violate the Trump administration’s ban on U.S. exports to certain Chinese companies.

Driving the news: some shenanigans, some earnings

Shenanigans first. Though many thought this suit was about Huawei, the blacklisted lightning rod in the U.S.-China thunderstorm, FedEx CEO Fred Smith said it was actually about the five new Chinese companies blacklisted last week under "extraordinarily opaque requirements."

But Huawei would have been a good guess...

• Last month, China said it would investigate FedEx after two packages destined for Huawei addresses were diverted to the U.S. FedEx said they were “misrouted in error,” like your socks.
• Last week, a FedEx package carrying a Huawei phone to the U.S. got return-to-sender’d back to Britain. FedEx blamed an “operational error.”

Now, facing a "virtually impossible task," FedEx feels like it's also been caught in the U.S.-China storm. It believes it has to a) risk legal penalty or b) refuse to ship any packages that seem even a little fishy.

• FYI, the Commerce Dept. told Fox the regulation only means FedEx can’t “knowingly ship” banned items.
• FYI x2, FedEx says it receives about 15 million packages daily for shipment and gets roughly 7% of revenue from China. Smith said fines for violations could be $250k/package.

And the earnings?

Even though FedEx topped profit expectations and met revenue forecasts, shares fell about 1% after hours yesterday. Smith called fiscal 2019 a year of “challenge and change,” and the company said it can’t give full 2020 guidance because of accounting uncertainties.

Bottom line: FedEx’s punctuation of choice these days is the question mark. Will it face backlash (or worse, blacklisting) from China? Could the dual Amazon/Uber threat grow? Where are your socks? Don’t expect easy answers.

PHARMA

It’s Allergan Season at AbbVie

that sorely need it. AbbVie (-16.21%) said yesterday it’s buying Allergan (+25.43%), the maker of Botox, for about $63 billion in cash and stock. The purchase is a 45% premium over Allergan’s closing price Monday.

We won’t call it a “marriage of convenience,” but...the status quo appeared unsustainable.

• AbbVie’s Humira, a rheumatoid arthritis treatment, is the best-selling drug in the world. And although it brought in almost $20 billion in revenue last year, Humira's lower-priced competitors are already on sale in Europe and headed for the U.S. in 2023. AbbVie shares have fallen 36% in the last 18 months as Humira’s patent nears expiration.
• Allergan shares have also slumped in the past few years—to the point where an activist investor floated major changes, including a split.

Bottom line: By tying the knot, both companies hope to reduce dependency on sales of a narrow set of drugs.

CRYPTO

Libra Is Still on a Tight Leash

It’s been about a week since Facebook (-1.95%) unveiled Libra, its cryptocurrency intended to upend the global financial system with a 2020 launch to Facebook’s 2.4 billion users. But like a rebellious teenager, all that promise comes with some total bummer rules, man.

Instituting a 10pm curfew: The Financial Stability Board (FSB) and the U.K.’s Financial Conduct Authority, which want more Libra oversight.

• FSB head/Federal Reserve vice chair Randal Quarles told G20 leaders in a letter that the more widespread cryptocurrencies like Libra become, the more scrutiny they deserve.

The Bank of England and the G7 have also warned FB that its regulation-light Libra vision isn’t realistic. Plus, the U.S. House Financial Services Committee and Senate banking committee have back-to-back Libra hearings slated for next month. V lame.

But the one regulator giving Zuck permission to stay out late is Fed Chair Jerome Powell, who said he’s “not too concerned” about Libra undermining central banks’ monetary policy goals.

E-CIG

You Can Take That Vape Pen to LA

San Francisco became the first U.S. city to pass an ordinance that bans the sale and distribution of e-cigarettes, both online and IRL. Officials cited e-cigarettes’ lack of a premarket FDA review and high youth vaping rates.

• They don’t not have a point. The CDC said that in 2018, one-fifth of all U.S. high school students reported using an e-cigarette in the last 30 days.
• That’s led to a boom in the e-cig industry led by Juul, which was last valued at $38 billion and inhaled $528 million in sales last quarter.

But...a lot of people don’t support the ban.

• The L.A. Times Editorial Board points out that marijuana, which is legal in California, also hasn’t undergone FDA review.
• Some critics also argue that limiting youth vaping will increase youth smoking, because the less-harmful nicotine product won’t be available anymore.

The ordinance is now headed to SF mayor London Breed, who has 10 days to review it. If she signs off, it will take effect seven months later.

INTERNATIONAL

Never Have I Ever...Compared North Dakota to Latvia

Until now.

Our cosmopolitan friends at GZERO Media put together this graphic showing every U.S. state as a country with a similar GDP. Armed with the knowledge that Nevada’s economic activity is close to that of Bulgaria, you have no excuse to let a conversation fizzle out this week.

And btw, if you’re looking for a good geopolitics/international affairs newsletter, this is the one.

WHAT ELSE IS BREWING

• Illinois legalized marijuana for recreational use. It’s the 11th state to make recreational pot legal.
• Jared Kushner kicked off his workshop in Bahrain with an appeal to Palestinian leaders. They’ve rejected the White House’s $50 billion economic proposal.
• Wayfair (-5.26%) workers are planning to walk out over the company’s alleged business with contractors outfitting camps for asylum seekers at the U.S.-Mexico border.
• Apple (-1.52%) once again led S&P 500 companies in stock buybacks in Q1, spending a record $23.8 billion. It holds eight of the 10 records for quarterly buybacks.
• Nissan managed to overhaul its board during a shareholder meeting, but not without some Renault-induced drama

BREAKROOM

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Industry: Social media

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