LATIMES.COM/BUSINESS C3
Chinese officials.
Trump’s comments
came as U.S. and Chinese of-
ficials continued to hold
meetings in Washington
aimed at laying the ground-
work for higher-level talks in
early October that could
ease the trade war between
the economic powers.
Earlier this week, Trump
said the two sides were close
to striking a deal. But the
president has frequently
made optimistic comments
about the state of the trade
negotiations that have not
been borne out.
U.S. officials have been
considering freezing new
tariffs and possibly remov-
ing some existing ones as
long as China moves ahead
with some large-scale pur-
chases of American agricul-
tural products.
Financial markets sold
off on the renewed sense
that Washington and Bei-
jing were struggling to make
progress to resolve the trade
dispute, which has been on-
going for well over a year.
Stocks saw earlier gains
evaporate on the cancella-
tion news, with the S&P 500
index falling as much as 0.8%
before paring some of its
losses. Treasury bonds ral-
lied sharply, with the yield on
the benchmark 10-year note
falling 3 basis points to 1.75%.
The shorter-dated two-year
bill saw its yield slide 4.6 ba-
sis points to 1.64%.
Trump said Beijing had
made some “very big” agri-
cultural purchases this week
but stressed that he would
not accept a narrow deal —
which would focus on efforts
to reduce the U.S. trade defi-
cit with China but do less to
compel the country to tackle
problems related to intel-
lectual property theft and
market access reforms.“China has been starting
to buy our agricultural prod-
uct,” Trump said. “But
that’s not what I’m looking
for. We’re looking for the big
deal, we’ve taken it to this
level.”
In a sign that the U.S. was
willing to ease some pres-sure from the trade conflict,
it exempted 400 Chinese im-
ports from its tariffs Friday.
Critics are concerned
that the deal being contem-
plated, while potentially
pausing the trade war,
would fall far short of the
comprehensive agreementthat was debated and re-
jected between the U.S. and
China in May. This has
caused many analysts to
warn that the smaller inter-
im deal may never happen.
On Friday, a top Senate
Democrat urged Trump to
reject any deal that did not
address the bigger points of
contention between the
countries, such as intel-
lectual property.
“My hope is that the pres-
ident ... won’t back down just
for some commitment to
buy a couple of shiploads of
soybeans, but that we will
get something enforceable
around IP theft,” Sen. Chris
Coons (D-Del.) told CNBC
television.
Trump later suggested
that securing a trade deal
with China might help his re-
election prospects, but he
said it was not crucial be-
cause the American people
appreciated his efforts to
build the military and a
strong economy.
“It’s been really amazing
what we’ve been able to do. I
think the voters understand
that I don’t think it has any
impact on the election,” he
said. “Now, if something
happened, I think that
would probably be positive
for the election, but that’s
OK.”© The Financial Times Ltd.- All rights reserved. FT
and Financial Times are
trademarks of the Financial
Times Ltd. Not to be
redistributed, copied or
modified in any way.
Trump won’t rush trade deal with China
RETALIATORYtariffs have been the signature of the U.S.-China trade dispute.
Above, workers walk past imported soybeans at a port in Nantong, China, in 2018.AFP/Getty Images[Trade,from C1]
Two big names in cloth-
ing retail are getting smaller.
Gap Inc. laid out the details
last week of its previously
announced plan to split into
two companies — one that is
solely its Old Navy chain,
and another for everything
else. Meanwhile, J. Crew
Group Inc. made official last
week that it plans to spin off
its Madewell chain.
Both of these splits are
the right moves for two ap-
parel businesses that have
oddly similar problems:
Their newer chains are do-
ing well, but their older ones
are struggling. (Old Navy’s
comparable-store sales have
slipped in the two most re-
cent quarters, but it has
been the crown jewel of the
company for years.) The
breakups will enable execu-
tives to focus more intently
on the troubled brands’
problems.
But the plans are still
risky, on their own terms and
because of larger complica-
tions introduced by Presi-
dent Trump’s trade war. The
last month or so has amped
up enormous tariff-related
uncertainty for the apparel
industry, as Trump moved
to slap levies on $300 billion
worth of Chinese goods and
then quickly delayed some of
those levies.
Clothing retailers tend to
say they will deal with this
situation by negotiating
with suppliers. Scale is a
huge asset in such negotia-
tions, with the biggest com-
panies having the most lev-
erage. Once the Gap and J.
Crew empires split, they will
have less muscle to flex in
these discussions.
A similar dynamic exists
with their relationships to
their mall landlords. Con-
sider the latest in the saga of
another mall heavyweight,
Forever 21. The fast-fashion
retailer is reportedly holding
discussions with Simon
Property Group Inc. and
Brookfield Property Part-
ners about the mall op-
erators buying a stake in the
clothing chain as part of a
potential bankruptcy filing.
It would be similar to when
landlords stepped in to save
teen clothing chain
Aeropostale; the landlords
apparently decided owning
a piece of an ailing retail
chain was preferable to be-
ing stuck with a raft of va-
cancies.
Several retail giants have
filed for bankruptcy since
that 2016 Aeropostale deal
without mall operators in-
tervening. But Forever 21
might be different, in part
because of its scale: With
more than 800 stores, land-
lords may believe that it is, to
steal a popular phrase from
another industry, too big to
fail. A question for Gap and
J. Crew is whether their
splits leave them too small to
matter.
Of course, some of J.
Crew and Gap’s peers are
also slimming down, mean-
ing they might be dealing
with similar hurdles. Ascena
Retail Group Inc. has sold
its Maurices chain and is
shutting Dressbarn;
Bloomberg News reported
Thursday it is now consider-
ing unloading its Catherines
and Lane Bryant brands. L
Brands Inc. has closed its
small Henri Bendel chain
and sold La Senza — tiny
parts of its business, to be
sure. But it continues to face
questions from investors
about whether it should
separate Victoria’s Secret
and Bath & Body Works, a
move that would greatly
change its scale.
Overall, the benefits of a
sharper focus (and, in J.
Crew’s case, the ability to
use IPO proceeds to pay
down some debt) probably
will make these separations
worthwhile. But even the
best breakups are challeng-
ing — and the uncertain
trade and mall retail envi-
ronments are likely to make
them even more so.Halzack writes for
Bloomberg.Apparel
brands’
risky
gambit
Gap, J. Crew breakups
might leave them too
small to matter to
landlords, and unfit to
weather the trade war.
By Sarah HalzackCOMMENTARYFacebook Inc. said Fri-
day that it has suspended
“tens of thousands” of apps
made by about 400 devel-
opers as part of an investiga-
tion after the Cambridge
Analytica scandal.
Starting in March 2018,
the social media giant began
looking into the apps that
have access to its users’
data.
The investigation came
after revelations that data-
mining firm Cambridge An-
alytica used ill-gotten data
gleaned from millions of
Facebook users through an
app to try to influence U.S.
elections.
It led to a massive back-
lash against Facebook that
included Chief Executive
Mark Zuckerberg being
called to testify before Con-
gress. The company is still
trying to repair its reputa-
tion.
Facebook said that its in-
vestigation is ongoing and
that it has looked at millions
of apps so far.
The company said it has
banned a few apps com-
pletely and has filed lawsuitsagainst some, including in
May against a South Korean
data analytics company
called Rankwave. In April, it
sued LionMobi, based in
Hong Kong, and JediMobi,
based in Singapore, which
Facebook says made apps
that infected users’ phones
with malware.
Facebook settled with
the Federal Trade Commis-
sion for a record $5 billion
this summer over privacy
violations that stemmed
from the Cambridge Analyt-
ica scandal.
Also on Friday, the head
of the House IntelligenceCommittee said Zuckerberg
has assured him that Face-
book is working on ways to
prevent foreign actors from
disrupting next year’s elec-
tions.
Rep. Adam Schiff (D-
Burbank) met with Zucker-
berg and said the CEO
showed a deep awareness of
the threat to the elections
from “deep fake” videos and
other technically advanced
tools.
Schiff told reporters
Facebook is “in the process
of developing what I hope
will be very strong policies
on this. I think [Zuckerberg]fully appreciates the gravity
of the situation.”
It was Zuckerberg’s third
day of private meetings in
Washington, following other
sessions with top lawmakers
and President Trump.
Zuckerberg also met Friday
with the leader of a House
antitrust investigation into
the big tech companies and
pledged to cooperate.
The House Judiciary an-
titrust subcommittee, led by
Rep. David Cicilline (D-
R.I.), is investigating the
market dominance of Face-
book, Google, Amazon and
Apple.Facebook suspends ‘tens of thousands’ of apps
associated press
The Federal Reserve has
stepped up its efforts to re-
duce volatility in short-term
lending markets, announc-
ing Friday that it would in-
ject up to $90 billion in two-
week loans into the financial
system starting next week.
The new facility was re-
vealed after the Federal Re-
serve Bank of New York of-
fered overnight loans for a
fourth consecutive day,
helping to steady conditions
in the U.S. repo market,
where banks and investors
make short-term loans in ex-
change for Treasurys and
other high-quality collat-
eral.
The central bank said
that it would expand its in-
terventions beyond
overnight loans after the
lending rate for two-week
funds rose sharply — an indi-
cation that investors were
anticipating a fresh financ-
ing squeeze at the end of the
quarter, when companies
and traders settle their ac-
counts. The new two-week
loans will be offered in three
operations: on Tuesday,
Thursday and Friday.
“The fact they are willing
to telegraph this over quar-
ter-end reduces the poten-
tial for funding market vola-
tility like we have seen over
this week,” said Benjamin
Jeffery, an interest rate
strategist at BMO Capital
Markets. “It should hope-
fully offer some stability to
repo markets over the next
10 days.”
The year’s third quarter
concludes at the end of this
month.
The U.S. central bank’s
New York branch offered $75
billion of overnight funds
Friday, after an unusual
jump in borrowing costs ear-
lier in the week caused it to
intervene in the short-term
money markets for the first
time in a decade.
The overnight Treasury
repo rate had surged as high
as 10% on Tuesday. By Fri-
day, it had receded to 1.95%.
The effective federal
funds rate, which is the Fed’s
main policy tool, also fell
back to within the central
bank’s intended range of
1.75% to 2%. Earlier in the
week, it shot above its target
in an unusual breach, which
some analysts said sug-
gested that the central bank
had at least temporarily lost
control of the market.
The worrisome devel-
opment Friday was a rise inthe two-week repo rate to
2.7%, up from 2.35% in previ-
ous days, suggesting that
lending availability over this
period has begun to tighten.
U.S. banks and investors
have warned that a flare-up
may occur again during
quarter- and year-ends,
when there is typically a high
demand for cash.
“We think investors
should be prepared for dete-
riorating liquidity in the
funding markets into year-
end and the impact of this on
the financial markets as a
whole, with potential costs
for levered strategies and
risk assets in particular,”
said Jerome Schneider, head
of short-term portfolio man-
agement at Pimco, the
world’s biggest bond man-
ager.
Analysts blamed a con-fluence of factors — some
structural and others tem-
porary — for the crunch in a
part of the money markets
where Treasurys are ex-
changed for cash in trans-
actions that reverse
overnight.
“None of these pressures
was extraordinary or unfore-
seen, but together they had
an extraordinary impact,”
Schneider said.
He echoed the analysis of
others, saying $35 billion was
yanked from money market
funds before U.S. corporate
tax payments were due this
week. At the same time,
dealers needed to finance an
additional $20 billion in
Treasurys, acutely increas-
ing the demand for cash
sourced through repo trans-
actions.
Generally, banks wouldhave stepped into the repo
market. But falling excess
reserves meant that they
were less willing to use their
cash in repo transactions.
Friday’s overnight repo
auction by the New York Fed
saw a lower level of demand
from borrowers than the
previous two days. Bids
came in at $75.6 billion, down
from $84 billion Thursday
and $80 billion Wednesday.
On Tuesday, the first day
on which the $75 billion
overnight repo facility was
offered, the New York Fed
saw $53 billion of bids.© The Financial Times
Limited 2019. All rights
reserved. FT and Financial
Times are trademarks of the
Financial Times Ltd. Not to
be redistributed, copied or
modified in any way.Fed acts to soothe repo market
Central bank says it
will inject $90 billion
in two-week loans
that will be offered in
three operations.
By Adam Samson
and Joe Rennison
THE FEDERAL RESERVEsays it will expand interventions beyond overnight loans after the lending rate
for two-week funds rose sharply, signaling that investors see a fresh financing squeeze at quarter’s end.Spencer PlattGetty Images