Nosedive

The US is reconsidering its sanctions on China ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

July 5, 2022

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TOGETHER WITH

Good morning.

For the eighth year in a row, Chick-fil-A topped an annual survey by the American Customer Satisfaction Index measuring how people view fast-food restaurants.

The 25-year-old survey interviewed over 20,000 customers about food quality, food variety, service, restaurant cleanliness, and other factors. Collectively, they ranked McDonald's in last place — though the Golden Arches and its $23 billion in revenue last year, more than triple Chick-fil-A's $5.8 billion, will agree to disagree.

Morning Brief

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The US may relax sanctions on China to ease inflation, but whether that will work is another matter.

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The Church of England is debuting on the bond market.

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Airlines faced a predictably hectic weekend.

International Trade

US Weighs Easing China Sanctions to Address Inflation

In the latest effort to combat soaring consumer prices, the US government is considering reducing sanctions on China that predate the global inflation crisis.

The results could be tariffic or tarriffying, depending on how you look at it.

I Shot the Tariff

A blistering March 2018 report by the Office of the United States Trade Representative (USTR) set the stage for today. The agency found widespread abuse of intellectual property (IP) and technology rights in China, as experts estimated that Chinese IP theft costs the US economy $225 billion to $600 billion per year. In retaliation, the US placed tariffs of 7.5% to 25% on Chinese imports worth roughly $370 billion, raising prices on everything from clothes to bicycles to Bluetooth devices.

But after US inflation unexpectedly rose to 8.6%, there is pressure on the White House to address consumer costs in any way possible. One policy tool, which President Biden may act on as soon as this week according to sources who spoke to The Wall Street Journal, would be to roll back some of the China tariffs. Any progress towards inflation, however, may sacrifice much-needed leverage over a competing economic superpower:

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Analysts at the Peterson Institute for International Economics said removing Chinese import tariffs would immediately lower consumer-price index inflation by only 0.26% — although it may lead to a 1% reduction in inflation as American companies adjust markups to compete with lower prices. That would help, but still leave inflation a very long way from the Federal Reserve's 2% target.

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In 2020, China promised to increase US imports by $200 billion above 2017 levels and tighten its IP rules to resolve the trade dispute, but it hasn't gotten there yet. Biden's own Trade Representative appointee, Katherine Tai, has said lifting tariffs now would limit America's power to pressure China to follow through: "No negotiator walks away from leverage, right?" she said at a Senate hearing last month.

Biden v Bezos: If dealing with the world's second-largest economy weren't stressful enough, Biden's handling of inflation was ridiculed by Jeff Bezos over the weekend. The President called on gas companies to lower the prices they charge consumers, which Bezos slammed as "either straight ahead misdirection or a deep misunderstanding of basic market dynamics." Tough talk from one of the richest men in the world.

Religion

The Anglican Church is Making Its Bond Market Debut

The collection plate is making its way to an unusual place.

For the first time, the administrative body of the Church of England — which counts 85 million members worldwide, including 2 million Episcopalians in the US — is tapping the bond market to raise funds, according to church sources who spoke to Bloomberg.

A Different Trinity

The Church Commissioners for England, which oversees a $12 billion investment portfolio on behalf of the church, will help orchestrate the sale of the British pound-denominated debt. Some of the money raised will be used for general activities, presumably running the gamut from church upkeep to stocking up on the sacraments — try amassing enough Eucharist wafers in a time of volatile wheat inflation. Other funds will go towards environmental and social projects.

Church representatives began to gauge interest from markets on Monday in a series of investor meetings arranged by the Bank of America, JPMorgan Chase, and Morgan Stanley. It's expected that the Church will be considered a safe issuer, but that doesn't mean it will be able to walk on water above a broader, tough financial environment:

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Corporate bond sales denominated in pounds are being issued this year at half the pace they were in 2021, according to Bloomberg data. Many firms have scrapped debt sales or put plans on hold to wait out market volatility.

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Borrowing costs in the UK are trending higher than the notes at Sunday choir — the Bank of England has hiked its main interest rate five times this year, and further hikes to the current 1.25% rate are expected. The sterling-bond spread is approaching the highest levels since 2020.

Old Testament: The Church of England's main body can comfortably go into the bond market knowing it likely won't need to utilize the power of prayer. That's because they can simply consult their Pensions Board, which has two bonds outstanding worth £150 million. It's good to have friends in high places.

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Aviation

Travel Chaos Leads to Delays, Cancellations, and Resignations

(A RyanAir passenger plane; Photo by Paolo Margari)

Not everyone responds to pressure in the same way. Some lean on peers. Some open their transcendental meditation apps. Others embrace the grind, with the promise of happy hour salvation at the end of the day.

And still others, like the COO of Swiss budget-airline EasyJet, decide to simply call it quits. His tenure is just one of the many stories from a weekend of chaotic holiday travel disruptions. Serenity now, serenity now.

Up in the Air, Down in the Dumps

Over 1,300 flights were canceled in the US this weekend starting on Friday, peaking at 2.7% of all flights on Saturday, according to airline tracker FlightAware. Meanwhile, another 14,000 flights experienced delays. It may be an improvement from the 2,800 cancellations over the disastrous Memorial Day weekend, but that's little comfort for stranded travelers sleeping overnight in the Toledo airport.

After cutting 10,000 of 160,000 flights scheduled from July to September, EasyJet COO Peter Bellew resigned Monday. Other airlines are experiencing similar turbulence:

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Air Canada announced it is preemptively canceling around 154 flights each day through July and August as it faces "unprecedented and unforeseen strains" — the airline averages about 1,000 flights daily.

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Scandinavian airline SAS has seen roughly half its flights grounded as its pilots go on strike amid a contract negotiation— affecting around 30,000 passengers each day, the airline says. Meanwhile, cabin crews for European budget airlines RyanAir and EasyJet are planning a strike later this month.

Five-Year Delay: RyanAir recorded its busiest month ever in June, flying nearly 16 million passengers, up from just 5.3 million last June. Its CEO, Michael O'Leary, sees no signs of a slowdown and delivered a dire warning: high airfare costs will sustain for at least the next four to five years, as the industry deals with soaring labor and fuel costs. Time to plan your vacations well, well in advance.

Extra Upside

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You thought you had it bad: annual inflation in Turkey hit 78%.

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In a not so subtle response to union organizers, Amazon is barring off duty workers from its warehouses.

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