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China would not be the only country hurt by US steel tariffs

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Heavy tariffs and quotas on steel will hurt China, but other countries may well bear the brunt of such measures.

“The fact is that China does export a lot of steel and aluminum to the United States, but frankly, Canada, Brazil, Mexico, other countries import more steel than does China,” said Max Baucus, former U.S. ambassador to China, which is the world’s top overall steel exporter.

On Friday, the Commerce Department recommended imposing heavy tariffs or quotas on foreign producers of steel and aluminum in the interest of national security, following a trade investigation of imports. The metals are used in a wide range of industrial applications including infrastructure and cars.

President Donald Trump and his administration announced the investigation into steel and aluminum importation in April. It sought to determine whether the imports posed a threat to the country’s national security.

The recommendations call for tariffs on multiple countries, although Trump could determine that specific nations should be exempt, based on the economic or security interests of the United States.

The president could also consider a country’s willingness to work with the United States to address global excess capacity and other challenges facing the U.S. aluminum and steel industries.

The U.S. is the world’s largest steel importing country. The top shipper of steel into the U.S. is Canada. Large Asian exporters — and American allies — that may be implicated include South Korea and Japan.

According to Commerce Department data, China was not among the top 10 sources of U.S. steel imports in the period between January to September 2017.

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The U.S. economy is bigger than it was pre-pandemic, but Covid could still decide what happens next

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A worker hoists a flight chain at the Calder Brothers’ facility in Taylors, South Carolina, U.S., July 19, 2021.

Brandon Granger | Calder Brothers Corporation | Reuters

The U.S. economy is now larger than it was before the pandemic, but its growth rate may have peaked this year at a much slower pace than expected.

That doesn’t mean the second half of the year won’t be strong or the recovery will be derailed. The question is how strong growth can be, with a number of factors that can impact it, including the delta variant of the coronavirus.

Gross domestic product accelerated at a 6.5% annualized rate in the second quarter, slightly better than the revised 6.3% gain in the first quarter. But it was well below the 8.4% expected by economists, and far less than their earlier forecasts that growth in this year’s peak quarter would be 10% or higher.

GDP is the measure of all goods and services produced in the April to June period. According to the Commerce Department, the quarterly GDP level rose to $19.4 trillion in the second quarter, higher than the $19.2 trillion in the fourth quarter of 2019.

“We’ve noted that the Q2 GDP growth pace is a good gauge of the ‘speed limit’ for the economy, given widespread supply chain disruptions. That speed limit is a bit lower than we thought, and quite a bit lower than most forecasters and government institutions were expecting,” wrote Mike Englund, chief economist at Action Economics. “If shortages continue, the likelihood is that the more optimistic forecasts in the marketplace will need to be marked-down for Q3 as well.”

Englund said he will adjust his forecast for the second half, but now sees 2021 GDP growing by 6.1% year-over-year and 6.2% fourth quarter over fourth quarter. He said the Fed’s central tendency forecast is much higher, at 6.8% to 7.3%.

The pace of growth in the second quarter was the fastest since the third quarter of last year, when the economy bounced back 33.4% after the stunning collapse in the second quarter. Aside from that, it was the best growth rate since 2003.

Economists were surprised by some elements of the second-quarter report. Inventories remained a drag, while many expected businesses would begin rebuilding them. Government spending was also a negative, as were some construction categories.

“Everything that was expected to be weak came in a little weaker. There were more weak surprises than strong surprises,” said Tom Simons, money market economist at Jefferies. “At this point, we’re really in no-man’s land on the current economic data coming in. It keeps coming in softer than expected, but not at outright soft levels. I think we’re going to keep at incoming data to figure out what’s happening in Q3.”

The consumer was the bright spot, with consumption topping expectations. Consumption rose 11.8% over the first quarter, with 12% growth in services. Consumers are about 70% of all activity.

Several factors holding back growth

Worries rise over the virus

But the resurgence in Covid looms large over the outlook.

Tilley said that if the delta variant becomes a factor in slowing growth this year, the economic activity will spread out into next year. But should the economy slow because consumers have spent their savings or change spending habits on services, that would lead to a more negative outlook for the economy.

He pointed out the way that businesses are responding to the pandemic is shaping spending. For instance, spending on structures was down but intellectual property and equipment were higher.

“I worry more that we’re moving into a world where, yes, technology enables us to keep spending regardless of what happens with Covid. That keeps the overall economy going but it means also you could permanently eliminate some jobs more rapidly,” said Diane Swonk, chief economist at Grant Thornton.

Swonk said a bigger Covid outbreak could trigger behavior from consumers that could impact spending and slow growth.

“I would expect people could delay and defer which will elongate the recovery,” she said. “Disruptions that were once outliers and now normal.”

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Israel to give Pfizer Covid booster shots to elderly

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A man receives his third dose of COVID19 vaccine at Sheba Medical Center on July 14, 2021 in Ramat Gan, Israel.

Amir Levy | Getty Images

Israeli health officials plan to offer booster shots of the PfizerBioNTech Covid-19 vaccine to people over age 60 as the shot’s effectiveness appears to wane as the delta variant spreads across the world, NBC News confirmed Thursday.

The heads of health maintenance organizations that have been administering the Pfizer vaccine will begin administering third shots Sunday, according to NBC News. The booster shots are available for patients above 60 who have already received their second shot at least five months earlier.

The country’s Health Ministry reported last week that the two-dose vaccine is now just 39% effective in Israel where the highly transmissible delta variant is the dominant strain. The shot still works very well in preventing people from getting seriously sick, Israeli officials said, demonstrating 88% effectiveness against hospitalization and 91% effectiveness against severe illness.

The data out of Israel, which began vaccinating its population ahead of many other countries, is bolstering arguments from drugmakers that people will eventually need to get booster shots to protect against emerging variants.

Pfizer CEO Albert Bourla on Wednesday doubled down on his comments that people will need a third dose of the vaccine to maintain its high level of protection against the virus. The U.S. drugmaker published new data Wednesday from a company-funded study that showed the vaccine’s efficacy dropped to about 84% after four to six months.

“We have seen also data from Israel that there is a waning of immunity and that starts impacting what used to be what was 100% against hospitalization. Now, after the six-month period, is becoming low 90s and mid-to-high 80s,” Bourla said on CNBC’s “The Exchange.”

The Centers for Disease Control and Prevention, the Food and Drug Administration and the World Health Organization have said they don’t recommend Covid booster shots at this time, citing a lack of data. U.S. and world health officials have said they are looking at the Israeli research, which was not peer-reviewed and was scant on details.

“We have to be mindful that, with time, the effectiveness of these vaccines may wane,” Dr. Isaac Bogoch, an infectious disease professor at the University of Toronto, said in a recent interview.

He stressed that the shots still appear to be highly effective in preventing severe infection, helping hospital systems not get too overwhelmed heading into the colder months. That being said, “we’re still in the Covid era and anything can happen,” he said.

“We have to be prepared and we have to be nimble that people may need a booster at some point,” he added. “This close surveillance that’s happening in countries like Israel, the U.K. and other parts of the world is going to be very helpful in driving policy if and when we do need boosters.

Israel’s plans to boost its population come two days after the CDC reversed course on its prior guidance and recommended fully vaccinated Americans who live in areas with high Covid infection rates begin to wear face masks indoors again. The guidelines cover about two-thirds of the U.S. population, according to a CNBC analysis.

While the delta variant is hitting unvaccinated people the hardest, some vaccinated people could be carrying higher levels of the virus than previously understood and are potentially transmitting it to others, CDC Director Dr. Rochelle Walensky said Tuesday.

Walensky added new data shows the variant behaves “uniquely differently from past strains of the virus,” indicating that some vaccinated people infected with the delta variant “may be contagious and spread the virus to others.”

“This pandemic continues to pose a serious threat to the health of all Americans,” Walensky told reporters on a call. “Today, we have new science related to the delta variant that requires us to update the guidance regarding what you can do when you are fully vaccinated.”

– CNBC’s Kevin Stankiewicz contributed to this report.

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Stock starts trading on the Nasdaq

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Baiju Bhatt and Vlad Tenev attend Robinhood Markets IPO Listing Day on July 29, 2021 in New York City.

Cindy Ord | Getty Images

Shares of Robinhood slipped as much as 10% during its Nasdaq debut on Thursday, after pricing shares at the low end of the IPO range.

The online brokerage started trading on the Nasdaq at $38 per share, the low end of its range, valuing the company at roughly $32 billion. At $35, Robinhood’s market capitalization is about $29 billion.

Trading for the first time under ticker HOOD, the online brokerage hit the public markets it seeks to democratize for amateur investors.

Robinhood, whose stock trading app has surged in popularity among retail investors, sold shares in its IPO at $38 a piece on Wednesday evening. Robinhood is valued at 10.5x forward EBITDA.

The company sold 52.4 million shares, raising close to $2 billion. Co-founders Vlad Tenev and Baiju Bhatt each sold about $50 million worth of stock. The company was last valued in the private markets at $11.7 billion in September.

Goldman Sachs and JPMorgan Chase are the lead investment banks on the deal. Underwriters will have an option to buy an additional 5.5 million shares.

Unlike many recent IPOs, Robinhood was profitable last year, generating a net income of $7.45 million on net revenue of $959 million in 2020, versus a loss of $107 million on $278 million in 2019.

However, the brokerage lost $1.4 billion in the first quarter of 2021 tied to emergency fundraising-related losses during January’s GameStop trading mania. The company generated $522 million in revenue in the first quarter of 2021, up 309% from the $128 million earned in the first quarter of 2020.

Rapid growth

Founded in 2013, the free-trading pioneer forced the brokerage industry to drop commissions on retail trading, lowering the barrier for millions of new investors to access the stock market.

The app experienced record levels of new, younger traders entering the stock market during the pandemic. That surge has continued into 2021, marked by frenzied trading around so-called meme stocks. The millennial-favored stock trading app found itself in the middle of a firestorm in January amid the short squeeze in GameStop, which was partially fueled by Reddit-driven retail investors.

Robinhood — which offers equity, cryptocurrency and options trading, as well as cash management accounts — had 18 million clients as of March 2021, up from 7.2 million in 2020, an increase of 151%. The company estimates funded accounts reached 22.5 million in the second quarter.

The company estimates its 18 million retail clients and more than $80 billion in customer assets in the first quarter ballooned to 22.5 million users and more than $100 billion in the second quarter of 2021.

Assets under custody have ballooned to roughly $80 billion from $19.2 billion last March and are expected to top $100 billion in the second quarter.

Robinhood is the third-largest brokerage based on number of funded accounts, behind Fidelity and Charles Schwab, which purchased TD Ameritrade last year. Other competitors include Interactive Brokers and newer services like Webull and SoFi. Charles Schwab has a market capitalization of nearly $130 billion, and Interactive Brokers has a market valuation of about $26 billion.

The Menlo Park, California-based company reserved 20% to 35% of its IPO shares for its own clients, which CEO Tenev said he expects will be one of the largest retail allocations ever.

IPO shares have historically been set aside for Wall Street’s institutional investors or high-net-worth individuals. Retail traders typically don’t have a way to buy into newly listed companies until those shares begin trading on an exchange, so they miss out on the pop.

Robinhood’s loose lock-up structure is also unorthodox. Employees will be able to sell 15% of their shares immediately after the public debut, compared with the traditional six-month lock-up period. After three months, investors can sell another 15%.

DST Global, Index Ventures, NEA and Ribbit Capital are some of Robinhood’s biggest venture capital investors.

Road ahead

Despite its rapid growth in the past few years, Robinhood has some future risks.

Most notably, the Securities and Exchange Commission is reviewing payment for order flow, or the money-brokerage firms receive for directing clients’ trades to market makers. This controversial practice accounted for roughly 80% of Robinhood’s revenue in the first quarter.

The stock trading company collected a record $331 million in payment for order flow in the first quarter of 2021, according to a SEC filing.

“We think payment-for-order flow is a better deal for our customers, vs. the old commission structure. It allows investors to invest smaller amounts without having to worry about the cost of commissions,” Robinhood CFO Jason Warnick said Saturday at the company’s virtual roadshow. However, Warnick said Robinhood wants to be fully engaged in the regulatory and political discussion about PFOF. He said that if the model changed, Robinhood and the industry would be able to adapt.

Robinhood —which benefits from more speculative trading practices from its clients — also warned of a slowdown in trading revenue and account growth as the retail trading boom simmers. Options trading accounts for about 38% of revenue while equities and crypto are 25% and 17% of revenues, respectively.

“We expect our revenue for the three months ending September 30, 2021, to be lower, as compared to the three months ended June 30, 2021, as a result of decreased levels of trading activity relative to the record highs in trading activity, particularly in cryptocurrencies,” Robinhood said in an amended prospectus released last week.

Robinhood also said it anticipates the growth rate of new clients will be lower in the third quarter of 2021 from second quarter.

Robinhood is a five-time CNBC Disruptor 50 company and topped this year’s list. 

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