U.S.-China Relations Are Getting Ugly. Why This Could Wreck the Tech Rally.

While the U.S. move seems intended to close a loophole, China’s export controls could have far wider consequences.

China is going after raw materials. Gallium and germanium both feature on the U.S. government’s list of minerals “critical to the U.S. economy and national security.”

It’s a warning to the rest of the world. Chinese state-run newspaper the Global Times said it shows “China will not be passively squeezed out of the global semiconductor supply chain.” A former Chinese vice commerce minister described it as a “well-thought-out heavy punch.”

China’s sluggish economic recovery ought to weaken its position when it comes to talks with the U.S. but the risk of losing its dominance seems to have emboldened Beijing.

That may explain the juxtaposition between actions and words. China’s President Xi Jinping urged countries to avoid decoupling and cutting international supply chains, just a day after announcing the export controls. Treasury Secretary Janet Yellen’s visit to China Thursday is another sign that both sides want progress. But the escalation of their tit-for-tat fight completely undermines that.

The global chip sector will be rapidly assessing any potential impact, as will countries reliant on China’s exports. Chip stocks have had a stellar 2023 so far, the PHLX Semiconductor Index is up 46% since the start of the year, while Nvidia shares have surged 190%.

For investors, the question will be whether China’s bold move, or anything, can derail the remarkable tech stock rally.

—Callum Keown

*** Join MarketWatch’s personal finance reporter Andrew Keshner today at noon when he talks to deputy enterprise editor Jillian Berman on what borrowers need to know about their loans after the Supreme Court’s decision on the Biden administration’s loan forgiveness plan. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

***

Facebook Owner Meta to Launch Rival to Musk’s Twitter

Meta Platforms is preparing to launch a microblogging service to rival Elon Musk’s Twitter. It will be a golden opportunity for Meta CEO Mark Zuckerberg to expand his reach into a new social-media niche that is arguably being poorly served.

• The new app called Threads is expected to launch Thursday and hit the ground running, tapping the existing user base of Meta-owned Instagram. It appears in app stores with an expected launch date of July 6 and says users can login with their Instagram credentials.

• It comes at an opportune time as Twitter’s temporary restrictions on the number of tweets users can view left some looking for alternatives. Rival Mastodon has struggled to persuade users to adapt to its design, while Bluesky has been limited by its invitation-only policy with millions left on its waiting list.

• Musk and Zuckerberg are also squaring off in a different arena. Both sides are in active negotiations over a physical fight, a cage match, that is slated to be produced by Ultimate Fighting Championship President Dana White, the New York Times reported.

What’s Next: Meta’s Threads is well placed to attract displaced Twitter advertisers and profit from a future rebound in the advertising market. For Threads to really take off, it will likely need to bring over key Twitter users, and now is probably the right moment for Meta to strike. But in terms of the physical bout—the outcome is anyone’s guess.

—Adam Clark, Tae Kim, Rupert Steiner

***

Housing Recovery Complicates Fed’s Fight Against Inflation

The U.S. housing market is starting to recover, which will raise shelter costs and complicate the Federal Reserve’s fight against inflation. Prospective buyer traffic to new homes has nearly doubled in the past six months, despite still-high mortgage rates and a smaller supply of available homes.

• Sellers are receiving 3.3 offers, on average, for their homes, up from 2.2 in December, the National Association of Realtors said. New home sales jumped 12% in May, while home prices have climbed for three straight months.

• Rising rates make home buying more expensive, slowing demand, but they also make home building more expensive—hurting supply and driving up future prices. Fighting housing inflation with tighter monetary policies “can really backfire” in the long term, Zillow’s Jeff Tucker said.

• Roughly one third of available homes are a new construction. The
  iShares U.S. Home Construction
  ETF is up 38% this year as home builders rise.
  Toll Brothers
  stock has gained 58%;
  Lennar
  is up 38%;
  PulteGroup
  is up 70%; and
  D.R. Horton
  has climbed 35%.

• Smaller builders have performed even better.
  Green Brick Partners,

  Beazer Homes USA,
  and
  M/I Homes,
  three builders with market values below $3 billion, have returned 134%, 122%, and 89% this year, respectively.

What’s Next: Most builders will report second-quarter earnings in mid-to-late July. Since the housing market began to moderate from its frothy pandemic pace last summer, financial comparisons are expected to become easier in the second half of the year.

—Megan Cassella, Shaina Mishkin, and Janet H. Cho

***

U.S. Oil Producers Could Gain Share After Saudi Production Cuts

An agreement by Saudi Arabia and Russia to cut oil production through at least August could be a boost for U.S. oil producers such as
Exxon Mobil
and
Chevron.
The agreement could allow U.S. firms, which are boosting production this year, to build market share.

• Saudi Arabia is cutting production by one million barrels a day through next month, and Russia by 500,000 a day. Both moves are in addition to reductions made by the Organization of the Petroleum Exporting Countries (OPEC).

• U.S. oil production will average 12.6 million barrels a day this year, up from 11.9 million last year, according to the Energy Information Administration.

• The Saudis want limited production to raise oil prices. Brent crude is trading just over $76 a barrel. Exxon and Chevron have been raising production in the shale-rich Permian Basin, where they say they can produce oil for years to come.

• After an aggressive global campaign of interest-rate increases and the unexpected trouble China has had re-emerging from the Covid-19 pandemic, prices are down more than 10% since Jan. 1, even with OPEC’s pledges to reduce supply.

What’s Next: Gasoline prices are also falling. The national average is $3.529 a gallon, which is $1.28 a gallon below last year’s price. The EIA says with gas demand dipping, rising supply has helped limit price increases at the gas pump.

—Liz Moyer and Avi Salzman

***

Indiana Jones Movie Tops Weekend Box Office

Walt Disney’s
Indiana Jones and the Dial of Destiny is the latest in a string of summer movie sequels, taking an estimated $82 million at the domestic box office from its Friday opening through Tuesday, according to BoxOfficeMojo. But the blockbuster season is just getting started.

• Dial of Destiny cost $295 million to make. Other $200 million-budget movies already out this summer, including Disney’s Elemental have so far failed to recoup more than $100 million domestically. Warner Bros.’ The Flash just reached that level in domestic revenue.

• Dial of Destiny was expected to draw $70 million from international markets outside the U.S., for $152 million in global sales over the five-day July Fourth weekend.

• Christopher Nolan’s Oppenheimer, by
  Comcast’s
  Universal, and Greta Gerwig’s Barbie, by Warner Bros.—both films that cost $100 million to make—will battle for top ticket sales during a shared opening weekend later in July. A new Mission Impossible movie hits theaters on July 12, which cost $290 million to produce.

• If box-office revenue continues to be weak during the summer, Guggenheim analyst Michael Morris expects major studios to lower their expectations for how well a big-budget film will perform. A smaller budget for many studios’ biggest films may be part of a shift in priorities, he said.

What’s Next: The actors’ union in Hollywood agreed with studios to keep negotiating through mid-July, temporarily averting the threat of another labor strike in the industry after the writers’ industrial action in May. The SAG-AFTRA union and studios are extending their current contract through July 12.

—Janet H. Cho and Hannah Ziegler

***

Dear Quentin,

My husband wrote a secret last will and testament when we were in a bad place in our marriage. I do not know what is in this new will, but it’s still current and in his brother’s possession. We are in a much better place in our relationship now. However, I would like to write my own will. My husband is currently the beneficiary on my life-insurance policy. I would now like to change that, and split this 50/50 between him and my daughter.

Some questions: Would I have to change the policy? I do not want him to sell any of the assets in my name as I want to make sure they are secure for my daughter’s future. Can I specify this in my will? I would like to leave my 401(k) and IRA accounts to my daughter and husband, splitting them 50/50. What is the best way of doing this? Should I specify this in my will? Is it legal for me to write my own will without my husband’s knowledge?

—The Wife

Read the Moneyist’s response here.

—Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner