Finance

The China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday that both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies.
The Goldman Sachs analysts said Monday their model “suggests that the market may be pricing in around 50% probability” that Chinese companies could be delisted from the U.S.
That’s down from 95% in mid-March — the highest on record going back to January 2020.

The China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies. Pictured here is the CSRC building in Beijing in 2020.
Emmanuel Wong | Getty Images News | Getty Images

BEIJING — The risk of Chinese stocks delisting from U.S. exchanges has nearly halved after regulators reached an audit agreement, Goldman Sachs analysts said in a report Monday.
The China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday that both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies. China’s Ministry of Finance also signed the agreement.

“This is no doubt a regulatory breakthrough,” Goldman Sachs’ Kinger Lau and a team said, while cautioning that much uncertainty remains.
They pointed out the PCAOB said the deal was only a first step, while the Chinese side said they would provide “assistance” in the inspections.
The PCAOB said it planned to have inspectors on the ground in China by mid-September, and make a determination in December on whether China was still obstructing access to audit information.

The Goldman Sachs analysts said Monday their model “suggests that the market may be pricing in around 50% probability” that Chinese companies could be delisted from the U.S.
That’s down from 95% in mid-March — the highest on record going back to January 2020.

In late 2020, the U.S. Holding Foreign Companies Accountable Act became law. It allows the U.S. Securities and Exchange Commission to delist Chinese companies from U.S. exchanges if American regulators cannot review company audits for three consecutive years.
Since March, the SEC has started to call out Alibaba and other specific U.S.-listed Chinese stocks for failing to adhere to the new law.

Outlook for China stocks

If U.S.-listed Chinese stocks, known as American depositary receipts, are forced to delist, the shares could plunge by 13%, the Goldman Sachs analysts estimated.
MSCI China could fall by 6% under such a scenario, the report said. The index’s top holdings are Chinese stocks listed mostly in Hong Kong, such as Tencent and Alibaba.
A “no-delisting” scenario could send ADRs and MSCI China 11% and 5% higher, respectively, the report said.

Read more about China from CNBC Pro

Few China-based companies have listed in the U.S. following Beijing’s scrutiny of Chinese ride-hailing company Didi’s IPO in late June 2021. Regulators have since tightened restrictions on Chinese companies — especially those with at least 1 million users — wanting to list overseas.

CSRC’s recent moves

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Among the trials and tribulations of the plague years, there was a silver lining. In late 2020, with the approval of covid-19 vaccines, and into 2021, as the jabs worked their magic, techno-optimism began to spread. If people could develop life-saving inoculations in months, why couldn’t the world move out of its low-growth, low-productivity slumber? Firms could embrace digitisation as never before; the shift to working from home could allow people, free of office gossip and draining commutes, to work more effectively; before long there would be vaccines for every disease imaginable. Governments promised to spend big on science; companies outlined juicy r&d plans. It was quite a change of mood. In the years before the pandemic, the rich world’s growth rate had drastically slowed. In the 2010s American labour productivity—output per hour of work—grew half as quickly as in the decade before. Societies had become worse at finding new ideas, translating them into innovations and promulgating these innovations. Robert Gordon’s “Rise and Fall of American Growth”, published in 2016, argued that there were fewer life-changing discoveries waiting to be made. In early 2020 a paper in the American Economic Review, a leading journal, made the case that, even where there were ideas to be discovered, they were getting harder to find. The possibility that the dynamic had shifted was intoxicating, and not just because it suggested that some good would come of the pandemic. Productivity growth is the root cause of higher real wages. As the supply side of the economy expanded, inflation would become less of a problem. And innovations would improve people’s lives in ways not captured in the economic data. But our analysis comes to a depressing conclusion: so far there is little sign that the global economy is getting more productive.Official statistics are unusually volatile because of lockdown disruptions (see chart 1). In the second quarter of 2022 American gdp appeared to fall by 0.1%, even as the number of Americans on payrolls rose by 1.3m. Britain’s gdp fell by the same amount, while employment rose by 150,000. Both economies are thus producing less with more people working. As a new paper by Mr Gordon, of Northwestern University, and Hassan Sayed, of Princeton, notes, today’s weak productivity growth is the flipside of strong growth in 2020. Back then American firms fired their least valuable workers, boosting productivity. Now they are rehiring them, dragging it back down.Data published at higher frequencies support the notion that productivity growth remains poor. A global purchasing-managers index (pmi) compiled by JPMorgan Chase, a bank, asks bosses about the state of the economy and their business. A proxy for productivity derived from pmis, which we calculate by subtracting the employment component of the index from the output component, has in recent months actually fallen. We find similar results when applying the same methodology to a real-time indicator of economic activity published by Goldman Sachs, another bank (see chart 2).Why has the promised productivity boom failed to materialise? The optimists say that the benefits of the increase in investment that followed the pandemic will only be felt slowly. There is often a lag of three to five years between higher business investment and productivity growth. New research by Jason Draho of ubs, another bank, concludes that “starting in 2024, the rest of this decade could look more like the second half of the 1990s than the second half of the 1970s”. Yet there are three reasons to worry that the pandemic innovation boom might never arrive.The first relates to investment. Firms are spending, but not necessarily on things that lift productivity. In recent months, with customers facing empty shelves, many have scrambled to expand and protect supply chains. This improves resilience but by creating redundancy it also increases costs. Many firms are also building up “inventories”, or stocks of raw materials and finished goods. Such spending counts towards investment, as measured in the national accounts, but has zero impact on productivity. In Germany in late 2021, the build-up of inventories accounted for 9% of total investment, the most ever. Short-term crisis management has thus taken precedence over long-term innovation. In America r&d spending remains high, but our back-of-the-envelope calculation for 31 countries suggests that overall rich-world spending on “intellectual-property products” is running at about $3trn a year—below its pre-pandemic trend. There is little evidence of a boom in new discoveries and use of frontier technology. In 2020 economists talked excitedly about the coming wave of automation, as companies invested in AI and machine learning. But American robot imports, in real terms, are no higher than shortly before the pandemic.The second factor relates to working from home. Almost overnight hundreds of millions of people moved from the office to the kitchen table. Many have stayed there: a third of paid full days in America are now done from home. This is great for work-life balance. But predictions that it would also help people work more efficiently, which pre-pandemic studies had suggested was possible, are as yet unfulfilled. A recent survey of economists in America and Europe found that they were “uncertain about the long-term impact on productivity”. At home people might be able to focus more on “deep work”; they are also able to spend more time walking the dog.Indeed, in some instances the pandemic has introduced inefficiencies—the third factor. Companies are still spending on extra cleaning and other measures to make people feel safer, which will do little to raise profitability. With wave after wave of covid, workers are taking more sick days. In early summer an astonishing 4m Americans claimed to be off work because they had the disease or were caring for somebody with it, according to an official survey. In Britain, as people moved back to the office last year, the share of working hours lost to sickness jumped.Perhaps, at some point, the rich world will experience the long-awaited productivity boom. But adjusting for the volatility of the pandemic economy, Messrs Gordon and Sayed find “no room for a pandemic-era revival in productivity growth as has been widely suggested”. A large body of peer-reviewed evidence before the pandemic established that innovation had drastically slowed—and explained the structural reasons why that was so. Wishful thinking is not enough to change that.■ More

Credit and Debt – Special Report

On Aug. 24, President Biden announced the cancellation of $10,000 in federal student loan debt for most borrowers.
Student loans account for less than 10% of household debt in America, which reached $16.15 trillion during the second quarter of 2022.
Policy plays a vital role in keeping rising household debt in check.

On Aug. 24, President Biden announced the cancellation of $10,000 in federal student loan debt for most borrowers making less than $125,000 annually.
But student loans account for less than 10% of household debt in America, which reached $16.15 trillion during the second quarter of 2022.

“We shouldn’t be panicked about the level of household debt right now, but we should be concerned about it,” said Katherine Lucas McKay, associate director at the Aspen Institute Financial Security Program. “I think it’s particularly important for policy leaders and leaders in the financial world to pay attention to who and where we start seeing greater challenges.”
Policy plays a vital role in keeping household debt in check. Experts say outdated procedures such as wage garnishment, in which an individual’s earnings are withheld for the payment of a debt, are in dire need of a policy update. A survey found that about 7% of workers in America had their wages garnished, according to the most recent study in 2016.
“For folks who have higher debt loads, they’re actually getting their wages garnished or seized at really high rates,” according to Lucia Mattox, senior policy manager at the Center for Responsible Lending. “Currently at the federal level, only $217.50 is protected in someone’s weekly paycheck and that bill hasn’t been updated since the late ’60s.”
The government can also play a potential role in reducing certain kinds of borrowings, such as medical debt that is currently held by roughly 23 million Americans.
“There’s been a lag in the southeastern states of expanding Medicaid so we know that medical debt is going to be increasing,” said Mattox. “But if there’s a way to expand Medicaid so that folks are better supported in terms of their medical expenses that’s going to be a way to alleviate that burden.”
Watch the video to find out more about why household debt is rising in America. More

Electronic Arts (EA) signage is displayed on the back of a chair at the company’s campus in Burnaby, British Columbia, Canada.
Ben Nelms | Bloomberg | Getty Images

Electronic Arts (EA) signage is displayed on the back of a chair at the company’s campus in Burnaby, British Columbia, Canada.
Ben Nelms | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Affirm — Shares of the provider of buy now, pay later services tanked more than 20% after the company reported a larger-than-expected quarterly loss. Affirm also issued a disappointing outlook, but it did post quarterly revenue that topped Wall Street estimates.

Farfetch — Shares of online luxury retailer jumped almost 30% after the company reported quarterly earnings that beat analyst expectations. Farfetch posted a smaller-than-expected loss and more revenue than estimated.
Peloton — Peloton shares continued to decline, shedding almost 5% Friday. The connected fitness equipment maker closed down 20% on Thursday after reporting slumping sales and widening losses for its fiscal fourth quarter. The latest stock moves came after Peloton rallied 20% on Wednesday on the news of its partnership with Amazon.
Centene Corp — Shares of the health-care company lost 5% after Wells Fargo Securities downgraded them to equal weight from overweight. The company said in a release that it was not awarded contracts in certain California areas, which Wells Fargo called a worst-case outcome.
Electronic Arts — Shares of video game maker Electronic Arts climbed 5% after a Swedish news report that Amazon will announce an offer to buy the company. However, sources have told CNBC’s David Faber that no such deal is in the works.
Seagen — Shares fell more than 5% following a report that talks to be acquired by fellow drugmaker Merck have stalled, according to Bloomberg. People familiar with the matter told the news service that both sides have failed to agree on a buyout price.

Everbridge — Everbridge gained 16.8% on a Bloomberg report that the software company is exploring a potential sale.
Dell Technologies — Dell’s stock sank 11.5% after revenue in the recent quarter fell short of analysts’ expectations as the PC market shows signs of weakness. The company topped earnings estimates by 4 cents a share.
Workday — Shares of Workday rose 2.8% after the tech company topped second-quarter expectations. The company earned 83 cents per share after adjustments on $1.54 billion of revenue. Analysts surveyed by Refinitive were expecting a profit of 80 cents per share and $1.52 billion of revenue. Workday maintained its full-year subscription revenue estimate and hiked its margin guidance.
 — CNBC’s Carmen Reinicke, Michelle Fox, Jesse Pound and Yun Li contributed reporting

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President Biden announced a plan to forgive up to $20,000 in federal student debt for borrowers who received a Pell Grant and up to $10,000 for those who didn’t, under certain income limits.
Scammers will likely leverage the news to defraud unsuspecting borrowers.
Here’s what to know to avoid a student loan forgiveness scam.

President Biden this week announced a long-awaited plan to forgive student debt for millions of borrowers — and criminals will likely leverage the news to steal from unsuspecting victims, the Federal Trade Commission warned on Friday.
“Nobody can get you in early, help you jump the line or guarantee eligibility,” said a consumer alert issued by the agency. “And anybody who says they can — or tries to charge you — is (1) a liar, and (2) a scammer.”

Most federal student loan borrowers will be eligible for some forgiveness: Up to $20,000 for Pell Grant recipients, who tend to have lower household incomes, and up to $10,000 for those who didn’t get a Pell Grant.
There are some eligibility requirements. For example, borrowers’ debt must be held by the U.S. Department of Education. Their annual earnings — according to a measure called adjusted gross income — must also be below $125,000 or $250,000 for single and married borrowers, respectively.

Other tips for borrowers

Here are other FTC tips for student loan borrowers to ensure they don’t fall victim to scams:

Sign up for updates from the Education Department to be notified when the debt forgiveness process has officially opened.
Know who your federal student loan servicer is. Make sure it has your most recent contact information. That will help you get the latest updates on the cancellation, as well as the pause on loan payments through the end of 2022.
Never pay an up-front fee to someone offering debt relief. It’s illegal for companies to charge before they help you. You may not get any help or your money back.
Don’t be rushed. Criminals push consumers to act fast, saying they may miss qualifying for loan forgiveness and other programs if they don’t sign up right away.
Some scammers claim to need your Federal Student Aid Identification to help. Don’t share this; scammers may use it to break into your account and steal your identity.
If you spot a scam, report it to the FTC at ReportFraud.ftc.gov.

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Fed Chairman Jerome Powell on Friday pledged that the central bank will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.
In his annual Jackson Hole, Wyoming, policy speech, Powell added that higher interest rates likely will persist “for some time. The historical record cautions strongly against prematurely loosening policy.”
The remarks come amid signs that inflation may have peaked but is not showing any marked signs of decline. Powell said the Fed will not be swayed by a month or two of data.

Federal Reserve Chairman Jerome Powell delivered a stern commitment Friday to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.
In his much-anticipated annual policy speech at Jackson Hole, Wyoming, Powell affirmed that the Fed will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years.

Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is “no place to stop or pause” even though benchmark rates are probably around an area considered neither stimulative nor restrictive to growth.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Stocks fell after the Powell speech, with the Dow Jones Industrial Average off more than 500 points. Treasury yields were off their highs of the session.
The remarks come amid signs that inflation may have peaked but is not showing any marked signs of decline.
Two closely watched gauges, the consumer price index and the personal consumption expenditures price index, showed prices little changed in July, owing largely to a steep drop in energy costs.

At the same time, other areas of the economy are slowing. Housing in particular is falling off rapidly, and economists expect that the huge surge in hiring over the past year and a half is likely to cool.
However, Powell cautioned that the Fed’s focus is broader than a month or two of data, and it will continue pushing ahead until inflation moves down closer to its 2% long-range goal.
“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%,” he said. Looking into the future, the central bank leader added that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”
The economy is coming off consecutive quarters of negative GDP growth, a commonly held definition of a recession. However, Powell and most other economists see the underlying economy as strong if slowing.
“In essence, Powell is clearly stating that right now, fighting inflation is more important than supporting growth,” said Jeffrey Roach, chief economist at LPL Financial.

To the point

The speech was unusually brief.
Whereas Fed leaders, including Powell, often have used the Jackson Hole symposium as an opportunity to outline broad policy shifts, Powell’s remarks Friday clocked in at just about eight minutes.
He introduced the speech by noting that his “remarks will be shorter, my focus narrower, and my message more direct.”
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said. “Without price stability, the economy does not work for anyone.”
Markets are awaiting the Fed’s next meeting in September to see if the rate-setting Federal Open Market Committee will enact a third consecutive 0.75 percentage point increase. Powell said the decision “will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”
Traders are currently pricing a close call between a half-point and three-quarter point increase. As of Friday morning after Powell’s speech, the probability for a 0.75 point move was at 54.5%, according to the CME Group’s FedWatch measure.

Looking to history

The Fed is using a lesson from the past as its guidepost for current policy.
Specifically, Powell said the inflation of 40 years ago provides the current Fed with three lessons: That central banks like the Fed are responsible for managing inflation, that expectations are critical and that “we must keep at it until the job is done.”
Powell noted that the Fed’s failure to act forcefully in the 1970s caused a perpetuation of high inflation expectations that led to the draconian rate hikes of the early 1980s. In that case, then-Fed Chairman Paul Volcker pulled the economy into recession to tame inflation.
While stating repeatedly that he doesn’t think recession is an inevitable outcome for the U.S. economy, Powell noted that managing expectations is critical if the Fed is going to avoid a Volcker-like outcome.
In the early 1980s, “a lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” Powell said. “Our aim is to avoid that outcome by acting with resolve now.”
One concept molding Powell’s thinking is “rational inattention.” Essentially, that means people pay less attention to inflation when it is low and more when it is high.
“Of course, inflation has just about everyone’s attention right now, which highlights a particular risk today: The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” he said.

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Check out the companies making headlines before the bell:
Electronic Arts (EA) – The video game company’s stock jumped 6.2% in the premarket on a Swedish media report that Amazon.com (AMZN) will announce an offer today to buy EA. 

Gap (GPS) – Gap rallied 6% in premarket trading after the clothing retailer reported an unexpected quarterly profit. Gap’s results were helped by a jump in sales of dressier clothes at its Banana Republic chain as more people returned to offices.
Affirm Holdings (AFRM) – Affirm slumped 13.5% in the premarket following a larger than expected quarterly loss and a weaker than expected outlook. The provider of buy now, pay later services saw revenue top Street forecasts. 
 Seagen (SGEN) – Seagen shares slid 10.9% in premarket action following a Bloomberg report that talks for the drug maker to be bought by Merck (MRK) have stalled. People familiar with the matter say the two sides have so far failed to agree on a buyout price.
Everbridge (EVBG) – Everbridge jumped 14.3% in the premarket on a report that the enterprise software company is exploring strategic options including a possible sale. People with knowledge of the matter told Bloomberg the company is working with an adviser.
Dell Technologies (DELL) – Dell fell 5.5% in premarket trading after quarterly revenue fell below analyst estimates, as sales waned following a pandemic-era boom in PC sales. Dell reported better than expected earnings for its latest quarter.

Farfetch (FTCH) – Farfetch surged 14.1% in the premarket after the online luxury retailer reported a smaller than expected quarterly loss and revenue that topped analyst forecasts. 
Workday (WDAY) – Workday rallied 11.5% in premarket action after its quarterly profit and revenue topped estimates. Workday also issued an upbeat forecast as more customers adopt its human resources and finance software.
 Ulta Beauty (ULTA) – The cosmetics retailer reported better than expected results for its latest quarter and also issued an upbeat outlook, upholding a recent trend among beauty-related companies. Ulta added 3.8% in the premarket.
 Micro Focus (MFGP) – Micro Focus nearly doubled in off hours trading, rising 94.3% following news that the British enterprise software maker will be bought by Canadian software company OpenText (OTEX) in an all cash deal that values the company at $6 billion, including debt. OpenText shares fell 8.5%.

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Pedestrians walk past a Gap Inc. store in Shanghai, China.
Qilai Shen | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.
Affirm — The buy-now-pay-later darling’s shares slid nearly 14% after hours when it reported a bigger-than-expected quarterly loss of 65 cents per share, according to Refinitiv. It also issued weak revenue guidance for its fiscal first quarter and full year.

Ulta Beauty — The beauty retailer’s stock climbed more than 3% in extended trading after it reported earnings for the most recent quarter that beat estimates by 70 cents per share, according to Refinitiv. Ulta also raised its full-year earnings and revenue guidance.
Gap — The clothing retailer rallied 10% in late trading after posting a quarterly profit, excluding one-time items, of 8 cents per share. Its revenue came in at $3.86 billion, 8% below the prior year but greater than estimates of $3.82 billion, according to Refinitiv.
Workday — The cloud vendor’s shares jumped almost 12% after it posted better-than-expected earnings and revenue for its most recent quarter, according to Refinitiv. The company also reaffirmed its full-year guidance, though it’s not comparable to estimates due to subscription revenues.
Marvell Technology — The chipmaker’s shares slipped about 3% despite a quarterly earnings beat. The company issued slightly weaker-than-expected earnings and revenue guidance for the third quarter, according to Refinitiv consensus estimates.

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