Finance

Tencent launched Friday an all-in-one cloud product for domestic and overseas automakers in China with features ranging from storing data in a way optimized for training autonomous driving systems to giving drivers access to Tencent’s social media and map apps.
BMW and some U.S. automakers are already working with the company, Liu Shuquan, vice president of Tencent Intelligent Mobility, told CNBC on Friday. He declined to specify which American carmakers it’s working with.
Liu said his company partners with nearly 40 auto brands, including BMW, SAIC and Nio, and covering 120 vehicle models.

BMW’s iX electric SUV in China was the first global car brand to include the automobile version of Tencent’s WeChat messaging app, according to the Chinese tech company.

BEIJING — Chinese internet giant Tencent wants to sell technology which the company says will help foreign automakers that want to sell cars in China’s massive electric vehicle market.
BMW and some U.S. automakers are already working with Tencent, said Liu Shuquan, vice president of Tencent Intelligent Mobility, which is part of Tencent’s cloud business. Speaking to CNBC on Friday, he declined to specify which American carmakers it’s working with.

In a move aimed at helping boost its international strategy, Liu’s team launched a new cloud computing product for automakers called the “Tencent Intelligent Automobile Cloud” on Friday.
The all-in-one cloud product — also available for domestic automakers — can cover all technological aspects of an electric car, the company claimed. Those features range from storing data in a way optimized for training autonomous driving systems, to giving drivers access to Tencent’s social media and map apps.
The user interface may be a selling point for China’s drivers considering how Tencent dominates an array of the top online entertainment apps in China.
The company has played the role of Facebook in China with its ubiquitous WeChat messaging, payments and social media app — something tech rivals Baidu and Alibaba have yet to come close to.

In entertainment, Tencent has other apps as well: QQ Music, one of the two main Spotify-like apps in China; Tencent Video, which offers on-demand streaming content including reality shows and animated series; as well as popular mobile games like Honor of Kings.

Tencent Maps is the third most-popular navigation app in Apple’s App store in China — the top two belong to its key rivals Alibaba and Baidu.
All cars letting passengers or drivers access Tencent apps from the vehicle’s platforms need to have an agreement with Tencent, Liu said.
Those app-level partnerships started in 2018, around the same time Tencent Cloud began working with automakers for autonomous driving services, the company said.

Adding more self-driving tech

Players in China’s auto industry are increasingly betting that local drivers will want more autonomous driving features, which are essentially assisted-driving functions due to regulation of current technology.
Already in the first quarter, 23% of new cars sold in China came with a limited level of assisted driving, referred to as “Level 2” in a classification system for autonomous driving, according to Tencent.
With the new cloud computing product announced last week, Liu said overseas car companies could develop vehicles with navigation and assisted-driving features customized for China’s roads and terrain.
“The data is owned by [the] OEM, the consumer,” Liu said, referring to original equipment manufacturers which provide components and parts for another company’s product.
“We just provide cloud service to store that data. The second thing is we provide a whole ecosystem. That ecosystem not only include[s] our own service and content but also our partners’.”
Liu said his company already partners with nearly 40 auto brands, including BMW, SAIC and Nio, covering 120 vehicle models. He also noted partnership talks with German and Japanese companies.
BMW did not immediately respond to a CNBC request for comment. SAIC and Nio representatives spoke at Friday’s launch event for the “Tencent Intelligent Automobile Cloud” product.

Read more about electric vehicles from CNBC Pro

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Wise CEO and co-founder Kristo Kaarmann was recently fined £365,651 by U.K. tax officials for defaulting on his taxes.
The Financial Conduct Authority has now opened an investigation into the matter.
The probe could have significant ramifications for Wise and its chief executive.

Kristo Kaarmann, CEO and co-founder of Wise.
Eoin Noonan | Sportsfile | Getty Images

The CEO of £3.9 billion ($4.8 billion) fintech firm Wise is being investigated by U.K. regulators after tax authorities found he failed to pay a tax bill worth over £720,000.
Kristo Kaarmann, who co-founded Wise in 2011, was recently fined £365,651 by Her Majesty’s Revenue and Customs — the U.K. government department responsible for collecting taxes — for defaulting on the tax bill in 2018.

At the time, a company spokesperson said Kaarmann had submitted his personal tax returns for the 2017/18 tax year late, but has since paid what he owed along with “substantial” late filing penalties.
The U.K.’s Financial Conduct Authority has now opened an investigation into the matter, according to a statement from Wise on Monday. Regulators are looking into whether Kaarmann failed to meet regulatory obligations and standards.
The FCA declined to comment on the investigation.
Wise said its board hired external lawyers to help investigate Kaarmann’s tax violation. The investigation wrapped up in the fourth quarter of 2021 and its findings were shared with the FCA.
David Wells, chair of Wise’s board, said the company’s management takes Kaarmann’s tax default and the FCA probe “very seriously.”

“After reviewing the matter late last year the Board required that Kristo take remedial actions, including appointing professional tax advisors to ensure his personal tax matters are appropriately managed,” Wells said.
“The Board has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when they require, while continuing to support Kristo in his role as CEO.”
The probe could have significant ramifications for Wise and its chief executive. Kaarmann could be forced to step down and cease working in the industry if regulators rule that he fails the “fit and proper” test.
A Wise spokesperson declined to comment further on the FCA probe.
Shares of Wise barely moved on the news Monday. The company’s stock has fallen sharply since its July 2021 debut, losing around 57% of its value.
Wise, which competes with the likes of PayPal and Western Union, made a name for itself by tackling hidden fees in foreign exchange and quickly became a darling of the U.K. start-up scene. The company has since branched into other areas of finance, including banking and investments.

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Investors who are “apathetic” or negative toward banks will change their stance in the year’s second half, according to RBC Capital Markets’ top banking analyst.
Gerard Cassidy predicts bullishness will make a comeback due to strong revenue growth and optimism surrounding credit.

“You can really see people coming back to [bank] the stocks. They’re under-owned,” the firm’s head of U.S. bank equity strategy on CNBC’s “Fast Money” on Thursday. “At these valuation levels, there’s limited downside from here. But I think as people realize the banks are just not going to have the credit issues that they had in ’08-’09, that’s going to be the real rallying point for owning these names.”
Cassidy, one of Institutional Investor’s top-rated analysts, delivered his latest forecast after the Federal Reserve revealed the results of its most recent stress tests. The results determined all 34 banks have enough capital to cover a sharp downturn.
“The results came in quite nicely,” he said. “One of the major risks that we hear from investors today is that they’re worried about credit losses going higher.”
Financials have been under pressure. With just a week left in the first half, the S&P 500 banking sector is off 17%. Cassidy suggests the group is being unjustly penalized for recession jitters.
“What this [stress] test shows us, that unlike in ’08 and ’09, when 18 out of the 20 largest banks cut or eliminated their dividends, that’s not going to happen this time,” said Cassidy. “These banks are well-capitalized. The dividends are going to be safe through the downturn.”

‘Amazing numbers’

Cassidy speculates rising interest rates will set the stage for “amazing numbers” starting in the third quarter. He highlights Bank of America as a major beneficiary.
“We’re forecasting Bank of America could have 15% to 20% revenue growth this year in net interest income because of the rise in rates,” said Cassidy, who has a buy rating on the stock.
He expects struggling banks including Deutsche Bank and Credit Suisse to deliver better earnings results this year, too. Even in case of a financial shock, Cassidy believes they should be able to withstand it and come out with healthy capital.
“The real risk is outside the banking system,” Cassidy said “Once people realize credit is not that bad and the revenue growth is real strong, that changes the sentiment hopefully in the latter part of the second half of this year.”
S&P financials rallied 5% last week.
— CNBC’s Natalie Zhang contributed to this report.
Disclosures: RBC Capital Markets has received compensation for investment and non-investment banking services from Bank of America in the past 12 months. It has also managed or co-managed a public offering of securities for Bank of America.
Disclaimer

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The bad news on inflation just keeps coming. At more than 9% year on year across the rich world, it has not been this high since the 1980s—and there have never been so many “inflation surprises”, where the data have come in higher than economists’ forecasts (see chart). This, in turn, is taking a heavy toll on the economy and financial markets. Central banks are raising interest rates and ending bond-buying schemes, crushing equities. Consumer confidence in many places is now even lower than it was in the early days of the covid-19 pandemic. “Real-time” economic indicators of everything from housing activity to manufacturing output suggest that economic growth is slowing sharply.What consumer prices do next is therefore one of the most important questions for the global economy. Many forecasters expect that annual inflation will soon ebb, in part because of last year’s sharp increases in commodity prices falling out of the year-on-year comparison. In its latest economic projections the Federal Reserve, for instance, expects annual inflation in America (as measured by the personal-consumption-expenditure index) to fall from 5.2% at the end of this year to 2.6% by the end of 2023.You might be forgiven for not taking these prognostications too seriously. After all, most economists failed to see the inflationary surge coming, and then wrongly predicted it would quickly fade. In a paper published in May, Jeremy Rudd of the Fed made a provocative point: “Our understanding of how the economy works—as well as our ability to predict the effects of shocks and policy actions—is in my view no better today than it was in the 1960s.” The future path of inflation is, to a great extent, shrouded in uncertainty. Some indicators point to more price pressure to come in the near term. Alternative Macro Signals, a consultancy, runs millions of news articles through a model to construct a “news inflation pressure index”. The results, which are more timely than the official inflation figures, measure not just how frequently price pressures are mentioned, but also whether the news flow suggests that pressures are building up. In both America and the euro area the index is still miles above 50, indicating that pressures are continuing to build. Inflation worry-warts can point to three other indicators suggesting that the rich world is unlikely to return to the pre-pandemic norm of low, stable price growth any time soon: rising wage growth, and increases in the inflation expectations of both consumers and companies. If sustained, these could together contribute to what the Bank for International Settlements, the central bank for central banks, describes in a report published on June 26th as a “tipping point”. Beyond it, warns the bis, “an inflationary psychology” could spread and become “entrenched”. Evidence is mounting that workers are starting to bargain for higher wages. This could create another round of price increases as firms pass on these extra costs. A survey by the Bank of Spain suggests that half of collective-bargaining deals signed for 2023 contain “indexation clauses”, meaning that salaries are automatically tied to inflation, up from a fifth before the pandemic. In Germany ig Metall, a trade union, has asked for a 7-8% pay rise for nearly 4m workers in the metals and engineering sector (it will probably get about half that). In Britain rail workers went on strike as they sought a 7% pay rise, though it is unclear whether they will succeed. All this will make wage growth hotter still. Already, a tracker for the g10 group of countries compiled by Goldman Sachs, a bank, is rising almost vertically (see chart). A measure of pay pressure from Alternative Macro Signals is similarly animated. And wage floors are rising, too. The Netherlands is bringing forward a rise in the minimum wage; earlier this month Germany passed a bill increasing its minimum by one-fifth. On June 15th Australia’s industrial-relations agency raised the wage floor by 5.2%, more than double last year’s increase. Faster wage growth in part reflects public’s higher expectations for future inflation—the second reason to worry that inflation might prove sticky. In America expectations for average price increases in the near term are rising fast. The average Canadian says they are braced for inflation of 7% over the next year, the highest of any rich country. Even in Japan, the land where prices only rarely change, beliefs are shifting. A year ago a survey by the central bank found that just 8% of people believed that prices would go up “significantly” over the next year (consumer prices, indeed, rose by only 2.5% in the year to April). Now, however, 20% of Japanese people reckon that will happen. The third factor relates to companies’ expectations. Retailers’ inflation expectations are at an all-time high in a third of eu countries. A survey by the Bank of England suggests that clothing prices for Britain’s autumn and winter collections will be 7-10% higher than a year ago. The Dallas Fed does find tentative evidence that customers are less willing to tolerate price increases than before; a respondent in the rental and leasing business complained that “it is getting tougher to pass on the 20-30% price increases we have received from manufacturers.” But that merely points to a lower level of high inflation. The big hope for lower inflation relates to the price of goods. Fast increases in the prices of cars, fridges and the like, linked in part to supply-chain snarls, drove the initial inflationary surge last year. Now there is some evidence of a reversal. The cost of shipping something from Shanghai to Los Angeles has fallen by a quarter since early March. In recent months many retailers spent big on inventories in order to ensure their shelves stayed full. Many are now cutting prices to shift stock. In America car production is finally picking up, which could unwind some of the outrageous price increases for used vehicles seen last year. Falling goods prices could, in theory, help douse the inflationary flames in the rich world, easing the cost-of-living crisis, giving central banks breathing room and buoying financial markets. But, with enough indicators of future prices pointing the other way, the odds of that happening have lengthened. Don’t be surprised if inflation roars for a while yet. ■ More

The University of Michigan’s Surveys of Consumers said consumers expect inflation to rise at a 5.3% annualized rate as of the end of June.
That’s down from a preliminary reading released earlier this month, which showed inflation was expected by consumers to increase at a 5.4% clip.
Still, Surveys of Consumers director Joanne Hsu said consumers “also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.”

A shopper inside a women’s clothing store in the East Village neighborhood of Des Moines, Iowa, on Saturday, Feb. 5, 2022.
Kathryn Gamble | Bloomberg | Getty Images

A widely followed consumer sentiment survey released Friday showed inflation expectations have eased slightly.
The University of Michigan’s Surveys of Consumers said consumers expect inflation to rise at a 5.3% annualized rate as of the end of June. That’s down from a preliminary reading released earlier this month, which showed inflation was expected by consumers to increase at a 5.4% clip.

Still, Surveys of Consumers director Joanne Hsu said consumers “also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.”
Federal Reserve Chair Jerome Powell said earlier this moth an uptick in consumer inflation expectations helped sway the central bank to raise rates by 75 basis points, or 0.75 percentage point. That’s a bigger rate hike than many anticipated heading into the announcement.
Meanwhile, overall consumer sentiment fell to a record low, hitting 50. That’s 14.4% below a May reading of 58.4 and 41.5% from a year-earlier period.
“Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines,” Hsu said.
“About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession,” Hsu added.
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JPMorgan Chase told workers that it will pay for travel to states that allow legal abortions, according to a memo first obtained by CNBC.
In a question-and-answer web page linked to the June 1 memo, the bank directly addressed whether it was covering abortion, as well as out-of-state travel to have the procedure.
“Our health care plans have historically covered travel benefits for certain covered services that would require travel,” JPMorgan said. “Beginning in July, we will expand this benefit to include all covered services that can only be obtained far from your home, which would include legal abortion.”

JP Morgan CEO Jamie Dimon speaks at the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 23, 2021.
Brian Snyder | Reuters

JPMorgan Chase, one of the largest employers in the U.S. financial industry, told workers that it will pay for travel to states that allow legal abortions, according to a memo first obtained by CNBC.
The news came as part of an internal communication to employees explaining expanded medical benefits set to begin in July, according to the June 1 memo.

“Effective in July, you will be able to access additional covered benefits under the U.S. Medical Plan,” the New York-based bank told workers. Those changes include “family-building benefits, such as cryopreservation,” and enhanced benefits for LGBT+ workers, the bank said.
“We will also expand our existing health care travel benefit, which today covers certain services such as organ transplants, to all covered health care services that can only be obtained far from your home,” JPMorgan told its staff.
JPMorgan’s announcement comes as the Supreme Court overturned Roe v. Wade, the landmark ruling that established the constitutional right to abortion in the U.S. in 1973. The expected result of that is that employees in states where the procedure is banned will have to travel to locales where it is still allowed. Before today, only rival bank Citigroup was known to have provided the travel benefit for employees.
In a question-and-answer web page linked to the June 1 memo, the bank directly addressed whether it was covering abortion, as well as out-of-state travel to have the procedure.
“Will you pay for an employee to travel to another state to seek an abortion if their state won’t allow them to get one?” the bank said.

“Yes. Our health care plans have historically covered travel benefits for certain covered services that would require travel,” JPMorgan said. “Beginning in July, we will expand this benefit to include all covered services that can only be obtained far from your home, which would include legal abortion.”
Abortions have long been covered by the company’s health plan, the bank added.

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The model of a portfolio split between 60% stocks and 40% bonds has struggled in 2022 amid high inflation and rising interest rates.
Despite headwinds, a 60/40 portfolio still has value for investors, according to financial planners and experts.
For one, there are few other places to turn. And investors may benefit from diversifying within the stock and bond categories.

Trevor Williams

How a 60/40 portfolio strategy works

The strategy allocates 60% to stocks and 40% to bonds — a traditional portfolio that carries a moderate level of risk.
More generally, “60/40” is a shorthand for the broader theme of investment diversification. The thinking is: When stocks (the growth engine of a portfolio) do poorly, bonds serve as a ballast since they often don’t move in tandem.
The classic 60/40 mix encompasses U.S. stocks and investment-grade bonds (like U.S. Treasury bonds and high-quality corporate debt), said Amy Arnott, a portfolio strategist for Morningstar.

Market conditions have stressed the 60/40 mix

Until recently, the combination was tough to beat. Investors with a basic 60/40 mix got higher returns over every trailing three-year period from mid-2009 to December 2021, relative to those with more complex strategies, according to a recent analysis by Arnott.
Low interest rates and below-average inflation buoyed stocks and bonds. But market conditions have fundamentally changed: Interest rates are rising and inflation is at a 40-year high.

U.S. stocks have responded by plunging into a bear market, while bonds have also sunk to a degree unseen in many years.
As a result, the 60/40 portfolio is struggling: It was down 17.6% this year through June 22, according to Arnott.
If it holds, that performance would rank only behind two Depression-era downturns, in 1931 and 1937, that saw losses topping 20%, according to an analysis of historical annual 60/40 returns by Ben Carlson, the director of institutional asset management at Ritholtz Wealth Management.

‘There’s still no better alternative’

Of course, the year isn’t over yet; and it’s impossible to predict if (and how) things will get better or worse from here.
And the list of other good options is slim, at a time when most asset classes are getting hammered, according to financial advisors.

If you’re in cash right now, you’re losing 8.5% a year.

Jeffrey Levine
chief planning officer at Buckingham Wealth Partners

“Fine, so you think the 60/40 portfolio is dead,” said Jeffrey Levine, a CFP and chief planning officer at Buckingham Wealth Partners. “If you’re a long-term investor, what else are you going to do with your money?
“If you’re in cash right now, you’re losing 8.5% a year,” he added.
“There’s still no better alternative,” said Levine, who’s based in St. Louis. “When you’re faced with a list of inconvenient options, you choose the least inconvenient ones.”

Investors may need to recalibrate their approach

While the 60/40 portfolio may not be obsolete, investors may need to recalibrate their approach, according to experts.
“It’s not just the 60/40, but what’s in the 60/40” that’s also important, Levine said.
But first, investors ought to revisit their overall asset allocation. Maybe 60/40 — a middle-of-the-road, not overly conservative or aggressive strategy — isn’t right for you.
Determining the right one depends on many factors that toggle between the emotional and the mathematical, such as your financial goals, when you plan to retire, life expectancy, your comfort with volatility, how much you aim to spend in retirement and your willingness to pull back on that spending when the market goes haywire, Levine said.

While bonds have moved in a similar fashion to stocks this year, it would be unwise for investors to ditch them, said Arnott at Morningstar. Bonds “still have some significant benefits for risk reduction,” she said.
The correlation of bonds to stocks increased to about 0.6% in the past year — which is still relatively low compared with other equity asset classes, Arnott said. (A correlation of 1 means the assets track each other, while zero connotes no relationship and a negative correlation means they move opposite each other.)
Their average correlation had been largely negative dating back to 2000, according to Vanguard research.
The S&P 500 Index is down 21% in 2022 and the Bloomberg U.S. Aggregate bond index is down 11%.
“It’s likely to work in the long-term,” Roth said of the diversification benefits of bonds. “High-quality bonds are a lot less volatile than stocks.”

Diversification ‘is like an insurance policy’

The current market has also demonstrated the value of broader investment diversification within the stock-bond mix, said Arnott.
For example, adding diversification within stock and bond categories on a 60/40 strategy yielded an overall loss of about 13.9% this year through June 22, an improvement on the 17.6% loss from the classic version incorporating U.S. stocks and investment-grade bonds, according to Arnott.
(Arnott’s more diversified test portfolio allocated 20% each to large-cap U.S. stocks and investment-grade bonds; 10% each to developed-market and emerging-market stocks, global bonds and high-yield bonds; and 5% each to small-cap stocks, commodities, gold, and real-estate investment trusts.)
“We haven’t seen those [diversification] benefits for years,” she said. Diversification “is like an insurance policy, in the sense that it has a cost and may not always pay off.
“But when it does, you’re probably glad you had it, Arnott added.

Investors looking for a hands-off approach can use a target-date fund, Arnott said. Money managers maintain diversified portfolios that automatically rebalance and toggle down risk over time. Investors should hold these in tax-advantaged retirement accounts instead of taxable brokerage accounts, Arnott said.
A balanced fund would also work well but asset allocations remain static over time.
Do-it-yourselfers should make sure they have geographic diversification in stocks (beyond the U.S.), according to financial advisors. They may also wish to tilt toward “value” over “growth” stocks, since company fundamentals are important during challenging cycles.
Relative to bonds, investors should consider short- and intermediate-term bonds over longer-dated ones to reduce risk associated with rising interest rates. They should likely avoid so-called “junk” bonds, which tend to behave more like stocks, Roth said. I bonds offer a safe hedge against inflation, though investors can generally only buy up to $10,000 a year. Treasury inflation-protected securities also offer an inflation hedge.

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Check out the companies making headlines before the bell:
CarMax (KMX) – The automobile retailer beat estimates by 7 cents with quarterly earnings of $1.56 per share, and revenue that also beat analyst forecasts amid what the company called a “challenging” used vehicle market. CarMax added 1.1% in the premarket.

FedEx (FDX) – FedEx rallied 3.4% in premarket trading after reporting its quarterly adjusted earnings of $6.87 per share beat estimates by 1 cent. Shipment volumes declined but were offset by increased shipping rates and fuel surcharges. FedEx also issued upbeat guidance for fiscal 2023.
Seagen (SGEN) – Seagen shares jumped 3.5% in premarket action after the Wall Street Journal reported that Merck (MRK) is pushing ahead with a potential deal to acquire the biotech company. The stock had jumped last week after the paper’s initial report that Merck was in talks with Seagen about a possible transaction.
Zendesk (ZEN) – Zendesk soared 56.5% in the premarket on reports that the software company is close to a buyout deal with a group of private equity firms. The Wall Street Journal reported that Hellman & Friedman and Permira are among those involved. The potential buyout comes after Zendesk announced last week that it had ended efforts to sell itself.
Microsoft (MSFT) – Microsoft gained 1.2% in the premarket after Citi named it a “top pick,” pointing to its attractive valuation and the company’s ability to sustain growth.
Bausch Health (BHC) – Bausch Health announced that Chairman Joseph Papa has stepped down from the board and it was not due to any dispute or disagreement with the health care products maker. Investor John Paulson will become chairman. Bausch Health jumped 3.6% in premarket trading.

BlackBerry (BB) – BlackBerry reported an adjusted quarterly loss of 5 cents per share, matching analyst forecasts, while the software company’s revenue beat estimates. BlackBerry’s results were helped by growth in cybersecurity and auto products. Its stock rose 1% in the premarket.
LendingTree (TREE) – LendingTree slumped 7.9% in premarket trading after the online lender cut its current quarter guidance. LendingTree pointed to recession fears, higher interest rates and inflationary factors for the revision.
Wolfspeed (WOLF) – The semiconductor developer was upgraded to “buy” from “neutral” at Goldman Sachs, which said the stock’s risk-reward profile is now much more attractive given a recent pullback and that a significant upward earnings inflection is ahead. Wolfspeed rallied 4.1% in premarket trading.

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