Meta and Twitter’s Social Media Fight Begins. Sorry Musk, Zuckerberg Wins Round One.

Meta’s timing could have been better. When Musk first bought Twitter users hunted for an alternative and they ended up flocking to Mastodon—a rival microblogging service.

But Twitter’s recent operational problems, general discontent with the platform, and social media users’ curiosity have combined to give Threads a fast start. Ten million users signed up for the platform, which is linked to Meta’s Instagram app, in the first seven hours, Zuckerberg said.

That’s all very well, but Twitter has more than 350 million estimated monthly users and it hasn’t turned a profit since 2019. The company is now worth just a third of the $44 billion Musk paid for it, according to Fidelity after it marked down the value of its stake in May. Those two things make Meta’s move to compete with the platform all the more puzzling.

However, if the company’s play is all about attracting more users to its suite of apps, to win advertisers over, then on that metric it may be close to an early success.

The Facebook owner was at a crossroads earlier this year as the realization hit that its massive metaverse bet wasn’t quite going to plan. Apple launching its own mixed-reality headset is piling on the pressure.

While settling on what it thinks will be the next big thing, Meta is dabbling in a new social-media platform, introducing some new AI features, and maintaining a scaled-back presence in the metaverse concept.

Investors may need more convincing about that plan—the stock has climbed 145% this year but remains more than 20% below its September 2021 record high.

Threads also marks a major milestone for competition among the Big Tech names. When it comes to competing against Twitter, if Meta can’t win, who can?

The bout has started and round one seems to be going to Meta.

—Callum Keown

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

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Yellen’s China Trip Comes Amid Heightened Tech Tensions

Treasury Secretary Janet Yellen’s trip to Beijing beginning today aims to deepen communication between the U.S. and the People’s Republic of China, but it also comes at a time of growing tension between the two countries over technology. Yellen’s visit follows a trip by Secretary of State Antony Blinken last month.

• Economists told Barron’s it was good to see dialogue, but progress might be limited. Stephen Roach, a senior fellow at Yale University’s Jackson Institute for Global Affairs, said he was concerned there is no clearly defined agenda for progress, except possibly debt relief for the developing world.

• Yellen is expected to argue that the administration’s moves to restrict cutting-edge American chip and other technologies from China is intended to address U.S. national security concerns and human rights, not an attempt to gain an economic advantage.

• China’s officials could address how extensive the Biden administration intends to make these restrictions. They also have been anticipating a Biden executive order limiting U.S. companies from investing in sensitive sectors of the Chinese economy, including chips, artificial intelligence, and quantum computing.

• The Biden administration has increased efforts to limit transfers of chips, computing products, and computing services to Chinese companies, while China has banned Chinese companies from buying products from American memory chip maker
  Micron Technology.
  China’s President Xi Jinping urged companies to stop decoupling their supply chains from foreign countries.

What’s Next: Yellen has said that fully separating the U.S. economy from China’s would be “disastrous for both countries” and destabilizing for the rest of the world, adding that the two nations “can and need to find a way to live together and share in global prosperity.”

—Janet H. Cho and Liz Moyer

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Fed Policy Makers Unlikely to Skip July Rate Hike

Although nearly all the policy makers at the Federal Open Market Committee’s meeting opted to skip a rate hike in June, they aren’t likely to do so in July. With inflation well above the Federal Reserve’s 2% target rate, investors can expect borrowing costs to rise through the end of 2023.

• “Almost all participants noted that in their economic projections that they judged that additional increases in the target federal-funds rate during 2023 would be appropriate,” minutes from the meeting said.

• Fed officials ultimately unanimously voted to keep the benchmark interest rate steady at 5% to 5.25% in June to more clearly determine the cumulative effect of tight monetary policy. But some FOMC members initially favored raising rates by a quarter of a percentage point.

• Most participants acknowledged uncertainty around the economic outlook and inflation levels. Some are concerned about the health of the banking sector following the three failures earlier this year, and noted that weakness in this sector could lead to further tightening of credit conditions.

• The only major economic readings expected between now and the July 25-26 meeting are Friday’s jobs report and the June consumer price index report. Powell has said the Fed has a way to go to get inflation back to its 2% target.

What’s Next: The probability of a quarter-point rate hike in July is currently at 88.7%, according to the CME FedWatch Tool. The Fed’s updated Summary of Economic Projections showed officials believe the federal-funds rate will hit 5.6% by the end of 2023, implying two more quarter-point hikes.

—Megan Leonhardt and Janet H. Cho

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JetBlue
Ends Its Alliance With American Airlines

JetBlue Airways ended its alliance with American Airlines Wednesday, choosing not to appeal a court ruling ordering the pair to unwind their partnership. But American said it intends to move forward with an appeal.

• The low-cost airline reiterated that it strongly disagrees with the ruling but said it has made the “difficult decision” to begin terminating its alliance with American in the New York and Boston areas.

• Opting against an appeal seems like a smart strategic move aimed at enhancing the chances of JetBlue’s $3.8 billion merger with Spirit Airlines being approved by the Justice Department. The government sued to block the merger earlier this year, arguing it would eliminate competition and harm travelers.

• JetBlue said its decision not to appeal the American alliance ruling renders the DOJ’s concerns about the proposed Spirit tie-up “entirely moot.” Raymond James analyst Savanthi Syth said: “We view JetBlue’s decision to not appeal as constructive for the JetBlue-Spirit merger odds.”

What’s Next: JetBlue’s decision is a gamble, but one that appears to make sense. However, it all depends on the merger being approved, otherwise the airline will be left to rue missing out on two growth opportunities.

—Callum Keown

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New Car Sales Beat Expectations in First Half of 2023

Americans are still buying new cars this year, despite rising interest rates and persistent inflation. The auto industry is on pace for a better-than-expected 12% to 14% increase in new vehicle sales for the first half of 2023. Electric vehicle tax credits of $7,500 have boosted U.S. sales.

• Kia,

  Nissan Motor,

  Subaru,
  and
  Honda Motor
  all reported strong first-half vehicle sales, and electric-vehicle makers
  Tesla
  and
  Rivian Automotive
  beat expectations for their respective second-quarter global deliveries.
  Ford Motor
  reports results today.

• Dealers and car executives credit pent-up demand from shoppers who have waited to buy for three years amid vehicle shortages, higher prices, and slim pickings. Despite predictions that prices would moderate, average prices rose 3% over the first half, to $46,000 in June, research company J.D. Power said.

• General Motors
  announced second-quarter U.S. deliveries of 691,978 vehicles, up from 603,208 vehicles the prior quarter, and about 19% higher from the same time last year. That includes 15,354 EVs, up 110% from second-quarter 2022.

• Second-quarter Chevy Bolt sales dipped 29% to 13,959 from the first quarter, while Cadillac Lyriq crossover sales climbed 39% to 1,348. Ford Motor, in comparison, delivers about 1,300 Mustang Mach E crossovers a month, while Tesla delivers 50,000 to 60,000 Model Y crossovers a month.

What’s Next: GM plans to introduce electric versions of its Chevy Silverado and Chevy Blazer later this year, and recently began production of its Silverado EV Work Truck, which could begin deliveries this quarter. Blazer EV production is also expected to begin in the third quarter.

—Janet H. Cho and Al Root

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ChatGPT’s Traffic Drops for First Time Since Launch

Traffic for OpenAI’s ChatGPT chatbot may have started to simmer down, according to the research firm
Similarweb,
which says worldwide traffic in June for the bot fell 9.7% from May and the number of unique visitors dropped 5.7%. It’s the first month traffic has fallen since November.

• In addition, Similarweb said the amount of time visitors spent on ChatGPT dropped 8.5%. OpenAI didn’t respond to Barron’s request for comment. Still, Similarweb said the bot gets more than 1.5 billion total monthly visits.

• The release of ChatGPT and its rapid success sparked a surge in interest for generative artificial-intelligence products that train on text, images, and videos. The chatbot powers
  Microsoft’s
  Bing AI chatbot.

• But tech investments aren’t booming as they have in the recent past. Global funding in the fiscal second quarter plunged 49% from the same quarter a year earlier, according to Crunchbase. First-half funding dropped more than half to $144 billion from the same time last year.

• This marks four straight quarters of funding decline, MarketWatch reported. Since the third quarter 2022, funding worldwide has slumped at least 45% each quarter compared with the same year-earlier period. Microsoft invested $10 billion in OpenAI in the first half of 2023.

What’s Next: Microsoft could become the second member of the $3 trillion market value club, following
Apple
as early as 2024 as growth in its cloud infrastructure business and projects such as ChatGPT drive investor enthusiasm, Wedbush analyst Dan Ives said.

—Liz Moyer and Tae Kim

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The Biden administration will take another stab at forgiving student loans for a wide swath of borrowers after the Supreme Court knocked down its earlier proposal. The new plan rests its authority on the Higher Education Act.

The Education Department will take comments from the public on the relevant issues and convene a group of stakeholders to discuss a proposed rule related to the waiver and compromise authority under the HEA. But some experts say the new plan could also wind up on the scrap heap. Here are some issues to consider.

Read more here.

—Jillian Berman

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