Good morning. Republicans may have made progress in reaching an accord on their spending bill after President Trump met with lawmakers yesterday. But investors still appear wary, raising the chances of Washington policy colliding with market reality. (Was this newsletter forwarded to you? Sign up here.)
Gaming out the costs of a megabillInvestors in American government debt are getting antsy. The yield on the 30-year Treasury bond passed 5 percent this morning, with traders seemingly spooked over a Republican budget bill that could push U.S. fiscal debt into record territory. President Trump made no mention of that yesterday during his trip to Capitol Hill to whip up votes for the legislation. A reminder of the stakes: The bill could be key to Trump's domestic agenda, and would determine fiscal policy for years. It's also making global investors ponder whether America is still worth investing in. At the moment, traders are betting that deficits will swell, pushing yields higher and therefore raising borrowing costs for businesses and households. Could that factor into the vote? House Republicans can only afford three defectors given their slim majority. Big differences remain over cuts to Medicaid, but there is a potential breakthrough in the thorny debate over deductions for state and local taxes for homeowners, Politico reports. It also includes funding for Trump's "Golden Dome" missile defense shield, which could cost as much as $542 billion. (SpaceX, Palantir and Anduril are in line to win contracts for that project, Reuters reports.) What's next? Here are some scenarios:
Elon Musk says he'll spend "a lot less" on elections. "I've done enough," the billionaire said at a conference yesterday, after having donated nearly $300 million to President Trump and other Republicans in the 2024 election cycle and this year in Wisconsin. Although Musk's donations and his work in the Trump administration may be affecting his businesses and backfiring politically, the entrepreneur left the door open to resuming mega-donations in the future. The Justice Department investigates Andrew Cuomo. Federal prosecutors are looking into accusations that the former New York governor lied to Congress about decisions he made during the pandemic, The Times reports. The move comes after the Justice Department, under Trump, dropped corruption charges against Mayor Eric Adams of New York; Cuomo, who is running to be the city's mayor, is leading Adams in the polls. Google bets on an artificial intelligence revamp of its search engine. The tech giant said yesterday it would add an "A.I. mode" chatbot that it hopes will fend off competition from the likes of OpenAI. But publishers have worried that such a move could decimate traffic to their sites, since the chatbot mode won't present the traditional list of blue links to external sites. Traders fret over a Bloomberg terminal outage. Users of the industry-leading financial information service — which costs $28,000 a year per terminal — complained today that it was suffering from delays that affected pricing events, including a British government debt auction. A message on Bloomberg's help desk acknowledged that the issue was being resolved. Rippling claims its Deel fight is escalatingThe sleepy world of human resources was shaken in March by allegations of corporate espionage against the start-up Deel by a rival, Rippling, that seemed torn from the pages of a thriller. Chief among them: Rippling's accusation that Deel had planted a spy in its ranks. Deel has fought back with a countersuit. But embedded in a document sent to some shareholders on Monday, Rippling now claims that federal prosecutors are looking into the matter, Michael de la Merced is the first to report. A recap: Rippling sued Deel in March, accusing its competitor of hiring a mole in its Dublin office to steal trade secrets. (The scheme was uncovered, Rippling says, via a "honey pot" trap involving a Slack channel.) The accused spy, Keith O'Brien, later confessed to helping Deel — and named Deel's C.E.O., Alex Bouaziz, as one of his primary contacts. Deel has denied any wrongdoing and accused Rippling of its own improprieties, including stealing money from clients. Rippling says that the U.S. authorities are now involved. The company told some shareholders, including early investors and current and former employees, that it had reported Deel's conduct to federal law enforcement and that it "understands an active criminal investigation into Deel's conduct is ongoing." Deel isn't "aware of any active investigations," the company told DealBook in a statement, adding that Rippling had "a long history of making false or sensationalized allegations to governmental authorities about competitors." In a lawsuit filed in a Delaware court last month, Deel added that Rippling had waged a "multipronged sabotage smear campaign against it." Has the fight affected the companies' businesses? Both Rippling and Deel have named new top internal lawyers in the wake of the fight. Rippling has also secured new investment: The document containing the criminal investigation claims is tied to a new fund-raising round and tender offer for existing shares, which values the company at $16.8 billion. China's trump card: rare earthsThere are signs that the Beijing-Washington détente is already fraying. On Monday, China accused the Trump administration of threatening a fragile week-old trade truce by going after Huawei. China can afford to play hardball. Its grip on critical supply chain materials, especially rare earths, gives it a way to inflict pain — and corporate America is watching closely. U.S. carmakers have privately warned President Trump's advisers that China's threats to restrict these crucial minerals could dent production and raise car prices. They want long-term supply access to be a key focus in trade talks, Grady McGregor reports. "It's China's trump card," said Gracelin Baskaran, director of the Critical Minerals Security Program at the Center for Strategic and International Studies. "Rare earths are the single biggest bargaining leverage China has." Background: China limited exports of seven such minerals in April as retaliation for Trump's tariffs. The move alarmed American carmakers because China controls 90 percent of the world's rare-earth supplies, including dysprosium, used for magnets that power electric vehicle motors. In addition to E.V.s, airbag sensors, power seats and traction control technology rely on these materials. "It could bring assembly plants in the West to a standstill," said Michael Dunne, C.E.O. of Dunne Insights and a former auto executive in Asia. Last week, China's government announced that it would pause some export restrictions. But it kept limits on foreign companies' access to some rare earth minerals, including dysprosium. American officials have long viewed China's rare-earth dominance as untenable. The military is also reliant on those minerals. Despite Trump's fixation on the issue, a workaround has proved elusive. Other countries, including the United States, are bolstering rare-earth mining efforts. But China's dominance in processing the minerals gives it a huge edge. In March, Trump declared domestic mineral production a national security priority. A recent U.S.-Saudi deal shows efforts to diversify away from China through other partners. But experts say the United States will be reliant on Beijing for years, if not decades.
Retailers choose their words carefullyAs major retailers post results this week, they're facing the tricky question of whether to raise prices in response to tariffs — and how to describe their plans. Trump's backlash against Walmart — he told the company to "EAT THE TARIFFS" after it said it would raise some prices — has complicated matters. Yesterday, Home Depot took the opposite tack, telling analysts on its earning call that it would not raise prices. Most U.S. companies plan to raise prices, according to a report from Allianz Research. So it'll come down to messaging. What's the right strategy? Pricing consultants and retail analysts told Danielle Kaye that the answer most likely depends on companies' long-term plans and the shifting tariff landscape. Here are some of the tactics that could come into play. Playing with semantics: Home Depot will "generally" hold its prices steady, executives said. But even as the company strove to emphasize stable pricing, executives hinted that not all prices would necessarily stay the same, noted David Silverman, a retail analyst at Fitch Ratings. The company could raise prices in certain categories or at certain times as well, he said. (Home Depot declined to comment to DealBook.) Denise Dahlhoff, director of marketing and communications research at the Conference Board, said she was advising retailers to avoid saying "tariff" when discussing pricing plans, given the politically fueled nature of the term. "More neutral terms to use are 'sourcing cost' or 'input cost' or 'supply chain cost' — they are not as incendiary as 'tariff,'" she said. Avoiding price increases by finding new ways to cut costs: Analysts predict a surge in private labels, or store brands. These products give retailers more control over things like the package size, which they could tinker with to bring down some costs. (Think: shrinkflation.) But it's a mid to long-term strategy, said Katherine Black, a partner at Kearney, a consulting firm, who advises large retailers on pricing strategy. Other strategies: Big companies could try to pressure suppliers to absorb some of the tariff costs. Home Depot said yesterday that it was diversifying its supply chains, so that in one year, it wouldn't source more than 10 percent of its products from any single country. The home improvement retailer also said it might shift product selection to mitigate cost increases. The American toy company Mattel said this month that it, too, aimed to scale back production in China. Walmart said last week that it could work with its suppliers to adjust product quantities over time. Are tariffs a cover to raise prices? There is some concern that companies could increase prices more than they need to because shoppers are already bracing for inflation. It happened during the pandemic.
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