Hey Snackers,
We'll cut right to it. That was rough.
Stocks suffered their worst day of the year as the US/China trade war just erupted on a whole new front: the currency battlefield. More below.
Battles
Stocks plummeted because of China's dramatic currency move
Not quiet on the Eastern front... Governments worldwide let the free market determine how much a dollar, peso, real, or pound is worth through supply and demand. Europe buying some fancy American corn? They'll have to sell euros and buy dollars first. That's why those airport currency exchange boards are constantly changing. But China's government does the opposite — it dictates how much yuan each $ is worth. Then this happened Monday:
- What China did: The government is weakening its currency so that your $1 now buys a whopping 7 yuan — the weakest level the currency has hit in over a decade.
- What the US did: It called out China — the Treasury Department labeled China a "currency manipulator," a naughty list the country hasn't been on since 1994.
Currency manipulation = Tariff kryptonite... China just opened up a whole new front in the trade war because this move neutralizes US tariffs. It's an intense escalation, but it's classic trade war tit-for-tat-for-tit-for-tat. Here's why it went down:
- Last week, the trade deal talks in Shanghai didn't end well.
- The US pledged a 10% tariff on the remaining $300B in Chinese goods not yet tariffed (mainly consumer goods you use, like toys and tech stuff).
- Since tariffs are like taxes, that would make the Chinese-produced iPhone X 10% more expensive to Americans.
- So by weakening the value of its currency compared to the US dollar, China offsets part of the tariff's impact.
Nobody really wins in a trade war... At first, US tariffs hurt China by making it more expensive to manufacture across the Great Wall, encouraging US companies (like Apple) to make stuff elsewhere. Now, China's currency manipulation hurts American companies because their Chinese competition is suddenly cheaper for customers to buy. Trade wars are races to the bottom (welcome to the new front).
Sauce
Shake Shack jumps to its highest point in a year (and pulls a delivery 180)
ShackBurgers are studying abroad... Shake Shack shares (say it five times fast) were already up 60% this year. They just rose higher as the chain spreads its caloric gospel worldwide — it's raising revenue expectations in Shanghai and Hong Kong, just opened in Mexico, and has new shops ready for the Philippines and Singapore. But we couldn't ignore the other earnings report highlight.
Shake Shack always hated delivery... That policy has led to brutal date-destroying lines (the Madison Square Park original literally has a live cam). For years, Shake Shack insisted your 'Shroom Burger and fries be eaten on-site. Here's what the CEO even said last year:
- Burgers were "not intended to be eaten half an hour after they were cooked."
- And delivery didn't "necessarily fit really well" with the brand.
- But wait — Update: Shake Shack just announced in its earnings that it's partnering up with GrubHub for delivery at 150 locations over the next 9 months.
We know, we know... We just chatted with you yesterday about the pinnacle of the food delivery wars (food delivery startups consolidating). But this Shake Shack update was the perfect example of another phase: exclusivity. Taco Bell's now with GrubHub. McDonald's committed to Uber Eats and DoorDash. The Shack tested delivery with Postmates, but ultimately landed with GrubHub. Exclusivity is the other key delivery battle you can't ignore.
Chicken
Tyson Meats and the great chicken pricing debacle of 2019
Meat sweats... Planet Earth's 2nd biggest "processor of chicken, pork, and beef" (not a fun term here) enjoyed a healthy quarter — Tyson's sales rose 8% and profits surged 25%, so the stock jumped 5%. One issue: Tyson was also accused of a giant meat price conspiracy that may have affected your summer BBQ game.
1 serving of subpoena from the Justice Department... Apparently some of Tyson's biggest clients have had some concerns about chicken prices — they rose 11% from 2012 to 2018. Walmart makes up 17% of Tyson's revenues and bolognese legend Olive Garden is another big buyer — but they (and others) got skeptical.
- The accusation: Tyson and other chicken producers colluded (which is illegal) to prop up prices by limiting chicken breeding (which is strange). Tyson denies it.
- The culprits: Tyson, Perdue, Pilgrim's Pride, and other chicken producers.
- The subpoena: The Justice Department is forcing Tyson to hand over any “documents and information related to the chicken industry.” Sounds official.
Cartels are hard... That's when companies get together, wink a few times, and make moves that keep prices artificially high. It's anti-competitive, anti-consumer, and simply illegal. But it's also challenging to pull off, since it requires the backdoor coordination of a few major players. That's why the most famous cartel isn't even in the US — it's OPEC, the international organization of 14 oil countries that control oil supplies so they can control oil prices.
What else we’re Snackin’
- Alone: Cars.com plummeted 34% after it met with 29 companies to try to sell itself...and no one wants to buy it
- Sharp: Puma's revenues jumped 16% as it doubles down on non-athlete leisure endorsements (Selena Gomez FTW)
- Unplugged: EA, Zynga, Activision Blizzard, and other video game stocks fall after President Trump connects them with mass shootings
- Opposite: Gun stocks went the other direction on expectations sales will jump as new gun control laws get discussed
- Re-google: Google plans to use 100% recycled parts in all its hardware by 2022
- Branded: Facebook wants to stick its name on Instagram and Whatsapp so more people realize who owns it (Zuck's idea — and he makes the decisions)
Tuesday
Earnings from Match, Planet Fitness, HubSpot, and Wynn Resorts
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