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Escalating US-China tensions spark fresh market fears

Updated 8:12 AM ET, Fri August 7, 2020

London (CNN Business) - The escalating fight between Washington and Beijing poses a big threat to markets, just as the S&P 500 is climbing back toward its all-time high.

What's happening: President Donald Trump on Thursday issued executive orders that would ban social media apps TikTok and WeChat from operating in the United States if the platforms are not sold by their Chinese owners within 45 days. And he turned up the heat on other Chinese companies listed on US exchanges by announcing recommendations for new audit rules.

The move against WeChat sent shares of its owner Tencent plunging as much as 10% in Hong Kong, my CNN Business colleague Sherisse Pham reports. They pared back some of those losses, but still ended the day down nearly 5%. Hong Kong's benchmark Hang Seng index fell 1.6%.

The VIX, a measure of US stock market volatility, rose more than 5% Friday, though the index remains far below its recent highs in March.

Trump already said that he would ban TikTok unless a sale is reached. Microsoft is pursuing a deal that would allow it to scoop up the app's operations in the United States, Canada, Australia and New Zealand.

But the inclusion of WeChat indicates that Washington is broadening its efforts to restrict Chinese tech companies from operating in the United States.

The moves to ban TikTok and WeChat represent an "unprecedented intervention by the US government in the consumer technology sector," according to Paul Triolo, head of geotechnology at Eurasia Group, a political risk consultancy.

It also marks the first time the government "has attempted to ban a software application running on millions of mobile phones" in the United States, Triolo wrote in a note to clients Friday.

Daniel Ives, an analyst at Wedbush Securities, called the action a "major step up of the tensions between the US and China." Tencent, he noted, is a "stalwart" of China's tech sector.

That's not all: The President's Working Group on Financial Markets said Thursday that US stock exchanges should set new rules that could compel Chinese firms to open their books to American regulators.

That condition has been resisted by Beijing, which requires companies that are traded overseas to hold their audit papers in mainland China where they cannot be examined by foreign agencies unless approved by Beijing, per my CNN Business colleague Laura He. This raises the possibility that big names like Alibaba and Baidu could be delisted from US exchanges by 2022.

The US Securities and Exchange Commission still needs to codify the rules. Eurasia Group thinks that could happen this fall, noting that the SEC is part of the working group.

What it all means: The battle over China's tech clout in the United States is gathering steam by the day, posing a big risk to markets just as investors would rather look ahead to a potential Covid-19 vaccine.

America's jobs recovery could be losing steam

After improving in May and June, the US job market is looking fragile again.

See here: The US government is set to release its monthly jobs report on Friday. Economists predict another 1.6 million jobs were added in July, driving the unemployment rate down to 10.5%.

That would be a solid improvement, but would mark a sharp slowdown from the 4.8 million positions added in June, my CNN Business colleague Anneken Tappe reports.

Watch this space: July was a tough month for employers as Covid-19 cases shot up in Sun Belt states and federal funds for businesses began to dry up. Though most economists believe the pace of the jobs recovery slowed in July, some say it reversed.

Lydia Boussour, senior US economist at Oxford Economics, said she expects Friday's report to show a loss of 280,000 jobs, rather than a gain. That would signal even more clearly that the foundations of the recovery are cracking.

There have been warning signs that July's numbers could disappoint. The ADP report on private payrolls released Wednesday, which is often used as a barometer for the official government report, showed only 167,000 jobs added in July, compared with 1.5 million expected. And initial claims for unemployment benefits ticked up around mid-July, putting an end to four months of declines.

But first-time claims for the week ending August 1 decreased again, hitting their lowest level since March. That's muddied the picture.

"July is so uncertain because some areas, some sectors continued to reopen in the early part of the month, and then things started to change," said Jeanette Garretty, chief economist at Robertson Stephens Wealth Management.

Uber's delivery service is bigger than its rides business

As the pandemic brought its ride hailing business to a halt, Uber's delivery service took on new importance. Now, it's Uber's biggest source of revenue, my CNN Business colleague Sara Ashley O'Brien reports.

Revenue from Eats reached $1.2 billion in the second quarter, double a year earlier, the company reported Thursday. Meanwhile, Uber's Rides business revenue plummeted 67% to $790 million.

"Our delivery business alone is now as big as our Rides business was when I joined the company in 2017," CEO Dara Khosrowshahi said on a call to discuss the results. "We've essentially built a second Uber in under three years."

That said: Uber lost $1.8 billion during the second quarter, adding to its long history of steep losses.

That's due in part to nearly $400 million in restructuring costs. The company cut roughly 25% of its workforce, or 6,700 employees, as it grappled with pressure from the pandemic.

Investor insight: The results sent Uber shares down 3.5% in premarket trading, though Uber's focus on food delivery — including its $2.65 billion purchase of Postmates announced last month — has helped prop up its stock price this year.

Up next

The US jobs report for July posts at 8:30 a.m. ET.

Coming next week: Tencent and Baidu report earnings as US-China tech tensions rise.

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