Finance

Mobile World Congress

In 2014, Amazon launched a product that let small businesses accept credit card payments using a smartphone or tablet.
The product was similar to technology from Block, the company formerly known as Square. But Amazon undercut the start-up on price.
Block co-founder Jim McKelvey says he was “terrified” at the time, but didn’t give up. A year later, Amazon’s service was discontinued.

Block co-founder Jim McKelvey.
CNBC | NBC Universal | Getty Images

BARCELONA — In 2014, Amazon launched a product that sounded strikingly similar to something already on offer from Twitter co-founder Jack Dorsey’s payments company Square, which is today known as Block.
It was called Amazon Register, and it would let small businesses accept credit card payments using a smartphone or tablet computer, just like Block’s technology. There was one key difference, though: Amazon offered processing fees of as low as 1.75%, compared to the 2.75% rate from Block.

“We were still a start-up, and Amazon copied our product and undercut our price,” Jim McKelvey, who co-founded Block with Dorsey in 2009, said during a fireside discussion with CNBC at the Mobile World Congress tech show.
“When Amazon does this to a start-up, the start-up dies,” he added. “When Amazon did that to Square, we were terrified.”
Block wasn’t unique in facing possible “death by Amazon.” The e-commerce giant has waded into several industries over the years, from cloud computing to TV and films. A number of retailers have been forced to either adapt or close down altogether due to the so-called Amazon effect.
The difference with Block, McKelvey says, is that it survived.
“We didn’t have the things that they had, so we couldn’t do what they were doing,” he said. “So we just kept doing what we were doing and basically ignored them. And it worked.”

A year after Amazon launched Register, the service was discontinued, highlighting the fiercely competitive nature of the digital payments sector. McKelvey says the company even mailed Square card readers to its customers: “They actually were pretty cool about it.”
It’s a tale as old as time: a Big Tech firm launches a feature similar to that of a smaller competitor, and that company subsequently struggles to continue due to the level of pressure.
It happened last year with Clubhouse. The audio-chat app saw a huge spike in downloads amid the coronavirus pandemic, before drifting into obscurity after copycat product launches from the likes of Facebook, Twitter and Spotify.
McKelvey said he’s long tried to figure out how Block avoided the same fate as companies that have faltered under pressure from internet giants like Amazon. According to the billionaire entrepreneur, copying a product isn’t enough. 
“If you are a normal business, you copy a model that already works,” he said. “The things that work for normal businesses don’t work for an entrepreneur.”
“Innovation is very uncomfortable,” McKelvey added. “People were telling Jack and me when we started Square that we were idiots. I had payment executives taking me out to dinner to tell me again the specific reasons why we were stupid and why we were going to fail.
“If you’re doing something that’s not copying the latest 5G crap that they’re selling, where somebody has built something that nobody ever thought of before, they’re really scared because they’re not getting the validation from the herd. You don’t get the validation until years later, until Amazon copies you.”
Since co-founding Block, McKelvey still sits on the company’s board but is less involved in the day-to-day. He is worth $2.3 billion on paper, according to Forbes. A glassblower by trade, McKelvey says he was inspired to create Square after losing a sale because he couldn’t accept American Express cards.
McKelvey now runs Invisibly, a company that develops micropayment tools for news publishers, and has also taken up venture capital investing. More

The watchdog group’s “gray list” is not as severe as its “black list,” which currently includes North Korea and Iran.
The UAE is the financial hub of the Middle East, home to numerous international companies’ headquarters.

The Gate Building (center left) in the Dubai International Financial Centre, United Arab Emirates, on July 5, 2021.
Christopher Pike | Bloomberg | Getty Images

DUBAI, United Arab Emirates — The Financial Action Task Force, an intergovernmental organization dedicated to combatting money laundering and illicit cash flows, is set to put the United Arab Emirates on its “gray list” over concerns that the Gulf country isn’t sufficiently stemming illegal financial activities.
The news was reported by Bloomberg Thursday, citing three anonymous sources at the Paris-based FATF. The designation could come as soon as Friday.

The watchdog group’s “gray list” is not as severe as its “black list,” which currently includes North Korea and Iran. The former list means that the country is “actively working” with the FATF to deal with weaknesses in its systems to “counter money laundering, terrorist financing, and proliferation financing,” but is under “increased monitoring” as it has not yet taken the necessary steps to fully tackle the problems. Other countries on the gray list include Pakistan, Turkey and Albania.
The UAE is the financial hub of the Middle East, home to numerous international companies’ headquarters, one of the world’s busiest airports, and a roughly 90% expat population. Putting it on the gray list could be one of the most significant decisions the FATF has ever made, Bloomberg wrote.
Read the full report here.

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Take a look at some of the biggest movers in the premarket:
Tesla (TSLA) — Shares fell 1.2% in premarket trading after CEO Elon Musk challenged the United Auto Workers union to try and organize his company’s assembly plant in Fremont, California.

Sweetgreen (SG) — Sweetgreen shares soared 19.9% in premarket trading after the salad chain reported strong sales growth in its first quarterly report since going public in November. The company also posted widening losses.
Gap (GPS) — Shares surged 7% in premarket trading after the retailer reported a narrower-than-expected loss for the fourth quarter and issued strong earnings guidance. Gap posted a loss of 2 cents per share, versus the 14 cents forecast by Refinitiv analysts. Revenue also beat estimates.
Costco Wholesale (COST) — The retail stock retreated 2% after a better-than-expected quarterly report. Costco reported fiscal second-quarter earnings of $2.92 per share on revenue of $51.9 billion. Analysts surveyed by Refinitiv had expected earnings of $2.74 on revenue of $51.47 billion.
Marvell Technology (MRVL) — Shares dipped 2.3% despite a slight earnings beat. Marvell reported fourth-quarter earnings of 50 cents per share, excluding items, on revenue of $1.34 billion. Analysts had expected a profit of 48 cents per share on revenues of $1.32 billion, according to Refinitv.
Broadcom (AVGO) — The chip stock rose more than 3% premarket after Broadcom beat Wall Street expectations for its fiscal first quarter. The company reported adjusted earnings of $8.39 per share, while analysts surveyed by Refinitiv were looking for $8.08 per share. The firm’s second-quarter revenue guidance also came in above expectations.

Best Buy (BBY) — The retail stock dipped 2% in early morning trading after Raymond James downgraded Best Buy to market perform from outperform. “We are placing our stock recommendation in ‘sleep mode’ for now,” Raymond James said.

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Cleveland Fed President Loretta Mester said Thursday that the Ukraine war has pressured inflation and intensified the need for higher interest rates to control inflation.
In a CNBC interview, the central bank official said greater rate hikes could be needed later in the year if prices don’t ease.

War in Ukraine only heightens the need for higher interest rates to get inflation under control, Cleveland Fed President Loretta Mester said Thursday.
The Russian invasion has pushed commodity prices higher, particularly for grains and energy, coming at a time when U.S. consumer prices are rising at the fastest annual rate in about 40 years.

Mester told CNBC that the conflict, while posing broader downside risks to the economic growth picture, is making inflation worse and necessitating monetary-policy tightening from the central bank.
“The situation in Ukraine adds uncertainty to the economic outlook,” she told CNBC’s Steve Liesman during a live “Squawk on the Street” interview. “The uncertainty about the outlook doesn’t change the need to get inflation under control in the U.S. In fact, it actually adds upside risk that high inflation might continue, and that makes it more important to take action.”
That action is likely to include a quarter-percentage-point increase in the Fed’s benchmark short-term borrowing rate at the Federal Open Market Committee meeting in less than two weeks.
While Mester has been a backer of aggressive Fed tightening, she did not endorse making that first move even stronger, such as a 50-basis-point, or half-percentage-point, increase. She said that decision can be made later in the year after seeing how the initial rate hikes affect inflation.
“We’ll have more information in the second half of the year about the effect of the situation in Ukraine for the medium-run outlook in the U.S. It certainly poses some downside risks for growth,” she said. “Those assessments might be a consideration in determining the appropriate pace at which to remove accommodation later in the year, but it certainly doesn’t change the need for taking action.”

Inflation as measured by the Fed’s preferred personal consumption expenditures gauge rose 5.2% in January, well ahead of the central bank’s 2% target and at the fastest pace since 1983. Other measures show inflation at an even higher level — the PCE index including volatile food and energy prices, for instance, rose 6.1% and the consumer price index was up 7.5%, both the highest since 1982.
Energy prices have jumped, with West Texas Intermediate crude up about 20% since Feb. 25. Grains also have risen sharply, as wheat prices are up about 25% over the same period.
“We have to take action,” Mester said. “We can’t just say, oh, inflation is going to come down on its own. We’ve seen that isn’t going to happen.”
Mester spoke as Fed Chair Jerome Powell testified to Congress this week that he expects inflation to come back down as supply chain pressures abate and other pandemic-related stresses ease. Markets expect the Fed to enact the equivalent of six 25-basis-point increases this year.

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An employee brings a television to a customer’s car at a Best Buy store in Orlando, Florida.
Paul Hennessy | SOPA Images | LightRocket | Getty Images

Check out the companies making headlines in midday trading.
Best Buy — The retail stock jumped 9.2% after the company announced it was raising its quarterly dividend by 26%. The move comes despite Best Buy reporting adjusted earnings just matching the Refinitiv consensus estimate.

Kroger — The grocery chain saw its shares jump 11.6% after it beat Wall Street expectations for earnings. The company reported fourth-quarter adjusted earnings of 91 cents per share on revenue of $33.05 billion. Analysts were looking for a profit of 74 cents per share on revenue of $32.86 billion, according to Refinitiv.
BJ’s Wholesale — Shares fell 13.2% after the wholesale retailer missed Wall Street expectations for quarterly revenue. BJ’s posted $4.36 billion in revenue, compared with $4.4 billion expected by analysts, according to StreetAccount.
Big Lots — Shares dropped 1.2% following a poor earnings report. The company posted earnings of $1.75 per share versus the Refinitiv consensus estimate of $1.89 per share.
Burlington — The stock tumbled about 13% in midday trading, after missing consensus estimates in its holiday earnings report. Burlington reported quarterly adjusted earnings of $2.53 per share on revenue of $2.6 billion, falling short of Refinitiv consensus estimates of $3.25 per share on $2.78 billion in sales.
Snowflake  —  Shares plummeted 15.4% after the software company reported earnings that indicated the slowest sales growth since at least 2019. Revenue for the fourth quarter came in above analysts’ estimates and grew by 101% year over year. The company reported an adjusted loss of 43 cents per share.

Box Inc. — Shares gained 2.2% after the company reported better-than-expected results for the fourth quarter. The company earned 24 cents per share excluding items on $233 million in revenue. Analysts expected earnings of 23 cents per share on $229 million in revenue.
American Eagle Outfitters — The stock sunk 9.3% after the retailer reported quarterly results. American Eagle warned higher freight costs would weigh on earnings in the first half of 2022.
Intel — Shares dipped 1.9% after Morgan Stanley downgraded the stock from equal-weight to underweight. “Downgrades of value stocks … will let us focus on more actionable situations that offer relatively more attractive risk-reward going forward,” Morgan Stanley’s Ethan Puritz said.
Southwest — Shares gained 1.5% after Evercore ISI upgraded the airline stock to outperform from in-line. “Greater relative financial strength + margin focused planning lead us to raise our rating on Southwest,” the firm said.
Citigroup — The bank’s stock fell 3.3% after downgrades from two firms. Analysts were underwhelmed by Citi’s medium-term target for return on tangible common equity, a key industry metric.
— CNBC’s Samantha Subin and Sarah Min contributed reporting.

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Russia’s invasion of Ukraine last week is pushing up the price of gasoline, and may lead to higher costs for food and electronics like smartphones, according to economists.
Russia is a major exporter of oil, wheat and palladium. Prices for those materials have spiked as a result.
Inflation is already rising at its fastest annual rate in 40 years.

A taxi driver refuels a vehicle at a Gulf gas station in Boston on Mar. 1, 2022.
Vanessa Leroy/Bloomberg via Getty Images

The economic effects of Russia’s invasion of Ukraine a week ago have reverberated around the globe — leaving many households to wonder how the conflict might hit their wallet.
The short answer: Prices may be going up, especially for gasoline (and indeed already have). Costs for food and goods like smartphones may also rise, according to economists.

Inflation would largely result from shortages and rising costs of raw materials like oil, wheat and metals like palladium — all of which Russia is a major producer.   
It would also come at a time when consumer prices are already rising at their fastest annual pace in 40 years.

Yet some of the inflation (if it comes to pass) will likely take months to appear, economists said. The timing and scale are hard to predict given the fluidity of the military conflict, novelty of Western sanctions against Russia and possibility of yet harsher ones.
“What makes projecting this stuff so difficult is, all these measures are so new and so unprecedented as a model,” according to Julia Friedlander, a senior fellow at the Atlantic Council and a former advisor on sanctions policy at the U.S. Treasury Department.
“What’s it like to take the 11th largest economy offline in the course of days?” she said.

The Federal Reserve is also expected to start raising interest rates this month to fight inflation.

Oil and gasoline

The price of gasoline is how consumers are most likely to feel the war’s inflationary impact in the short term, according to economists. Indeed, gas prices have risen since Russia’s saber-rattling started, even before the Feb. 24 invasion.
Crude oil is the main component of gasoline.
It accounts for 56% of what Americans pay at the pump, according to the Energy Information Administration. That’s why higher oil prices often translate to higher gas prices.
The Ukraine-Russia conflict pushed U.S. oil prices on Thursday to their highest level since 2008, at well over $100 a barrel. The global price jumped to a high unseen since 2012.
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Gasoline prices, in turn, edged up to $3.61 a gallon, on average, as of Monday — a jump of 33 cents a gallon since the beginning of 2022, according to federal data.
If high oil prices are sustained, the average cost may soon breach $4 a gallon, according to Andrew Hunter, a senior U.S. economist at Capital Economics.
That price would translate to an additional $75 billion of annual spending for households to fill up their gas tanks (relative to prices of $3.40 a gallon at the end of January), Hunter wrote in a research note Tuesday. The dynamic could cut households’ disposable income by 0.5%, he said.
“The single biggest issue is definitely what’s happening to oil prices,” Hunter said of the crisis’ consumer impact. “It looks like there’s more pain to come, unfortunately.”
President Joe Biden acknowledged the likely financial sting in his State of the Union speech Tuesday night. The U.S. and 30 other countries are releasing 60 million barrels of oil from strategic stockpiles, only the fourth time such a coordinated release has occurred, to try diluting the price surge.
“A Russian dictator, invading a foreign country, has costs around the world,” Biden said. “These steps will help blunt gas prices here at home.”

Food

The Russia-Ukraine conflict has the potential to impact food prices — though the effects will likely be felt most acutely overseas, economists said.
Russia is the world’s largest wheat exporter. Ukraine and Russia together account for almost 30% of global wheat exports.
Wheat prices on Wednesday surged to their highest level in 14 years. That could impact prices for bread, pasta, cereal, baked goods and other wheat-reliant foods, if producers pass higher costs on to consumers.
Russia and Ukraine are also major exporters of other food products like barley, sunflower seed oil and corn.
However, the U.S. is a net exporter of agricultural commodities, particularly wheat, corn and soybeans, which will likely dilute any impact, according to Hunter.
“I wouldn’t expect grocery prices to suddenly start rising now because of these moves,” he said. “If they’re sustained, it’s something you could potentially start to see over the coming months.”
Higher food prices are much more of an issue for the developing world, Friedlander said. Turkey, Egypt and Kazakhstan are the three biggest buyers of Russian wheat, respectively, for example.
“I don’t think it will affect the price of bread in Ohio,” Friedlander said.

Cars and technology

Russia is the world’s largest producer of palladium, supplying about a third of global demand.
Palladium is a metal used to manufacture semiconductor chips, also known as microchips, which are found in a range of consumer electronic products like smartphones, computers, TVs and digital cameras. Ukraine and Russia also account for the bulk of U.S. neon supply, also used for chip production.
Palladium is also a key metal used in catalytic converters, which control tailpipe emissions from cars.
“[That] will trickle down to production of high-end technology that relies on the Russian market,” Friedlander said of Russia’s palladium exports.
“It’ll take a while for the price to rise in the iPhone you buy, but eventually that could [happen],” she added.

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U.S. oil surged to the highest level since 2008 on Thursday, and Exxon CEO Darren Woods said prices could be heading much higher.
“If there is a significant supply disruption with respect to Russian crude … that will be very difficult for the market to make up and therefore that will lead to, I think, significantly higher prices,” he told CNBC Thursday.
West Texas Intermediate crude futures, the U.S. oil benchmark, hit $116.57 per barrel, the highest level since September 2008.

Darren Woods, Chairman and CEO, Exxon Mobil.
Katie Kramer | CNBC

U.S. oil surged to the highest level since 2008 on Thursday, and Exxon CEO Darren Woods said prices could be heading much higher.
“If there is a significant supply disruption with respect to Russian crude … that will be very difficult for the market to make up and therefore that will lead to, I think, significantly higher prices,” he told CNBC’s “Squawk on the Street.”

Oil prices surged above $100 per barrel last week as Russia invaded Ukraine, prompting supply fears in what was an already very tight market ahead of the invasion. Prices have kept climbing as the fighting intensifies.
West Texas Intermediate crude futures, the U.S. oil benchmark, hit $116.57 per barrel on Thursday, the highest level since September 2008. International benchmark Brent crude rose to $119.84, a price last seen in May 2012.
So far, the sanctions imposed by the U.S. and its allies have not targeted Russia’s energy complex directly, but the ripple effects are being felt. International buyers are shunning Russian oil to avoid potentially violating the financial sanctions.
Additionally, companies, including Exxon, are pulling Russian operations.
The oil giant announced Tuesday evening that it was halting operations in the country and would make no further investments. The announcement came after BP and Shell said they would divest from their assets in Russia.

“Our business engages significantly with the government, the host governments where we operate. We felt like the decisions that were being made by the Russian government with respect to its incursion in Ukraine were inconsistent with our philosophies and how we run our business,” Woods told CNBC.
He said Russia’s invasion was a “tipping point” in terms of working with the country, but left open the possibility of re-entering it at a later date.
“We’ll keep an open mind,” he said, before adding that “things would have to change pretty significantly, frankly.”
Prior to Russia’s invasion, oil prices were at multiyear highs. Demand has bounced back since the depths of the pandemic, and producers have kept supply in check. OPEC and its allies, which includes Russia, met Wednesday and said they would keep output steady. In April, they will raise production by 400,000 barrels per day, sticking with a previously agreed schedule.
Producers in the U.S. also have kept supply in check. As energy companies emerge from the pandemic, shareholders are demanding stricter capital discipline with an emphasis on capital return in the form of dividends and buybacks. So while in prior years prices above $100 would have led to an uptick in drilling, it hasn’t happened this time around.
Still, Woods said Exxon is “maximizing production” and expanding its operations in the Permian Basin.
He added that the market signals are working, which should ultimately bring more production online across the industry.
“That price response that we’re seeing is the outcome of a tight supply-demand balance. Marginal sources of supply …come into the marketplace and so I think you’ll see that price draw more resources,” Woods said.

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