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Facebook says employees had access to millions of Instagram passwords



Facebook CEO Mark Zuckerberg (C) leaves the office of Sen. Dianne Feinstein (D-CA) after meeting on Capitol Hill on April 9, 2018 in Washington, DC.

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Facebook CEO Mark Zuckerberg (C) leaves the office of Sen. Dianne Feinstein (D-CA) after meeting on Capitol Hill on April 9, 2018 in Washington, DC.

Facebook on Thursday said millions of Instagram user passwords were exposed to employees in a searchable format in an internal database.

The announcement came in an update to a blog post that was published last month after the company disclosed millions of Facebook user passwords were exposed to employees. The blog post originally said thousands of Instagram passwords were exposed. Cybersecurity journalist Brian Krebs reported in March that up to 600 million Facebook passwords were exposed.

Facebook said in the blog post it would be notifying the millions more Instagram users whose passwords were exposed. The company also said its internal investigation determined that the passwords were not “abused or improperly accessed.” However, thousands of Facebook employees would have had access to the passwords, and Facebook hasn’t provided an update to its investigation since it was originally reported in March.

Facebook’s stock was down less than half a percent Thursday afternoon.

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Recession signal could add to pressure to cut



A red-flashing recession indicator in the bond market only adds to the pressure the Federal Reserve will face when it meets next month to deliver what markets anticipate will be another rate cut.

The spread between yields on the two- and 10-year Treasurys flipped Wednesday morning as the shorter-duration debt rose above the level of the benchmark rate. That’s a classic recession indicator, predicting the past seven periods of negative U.S. growth.

The Fed already had been expected to cut its own funds rate by a quarter percentage point. But with economic signals getting increasingly negative, questions are bound to arise over whether the central bank will act even more aggressively.

A 25 basis point move “is still our base case,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management. “But the odds of a more aggressive cut are increasing the longer we are in this period of extreme volatility, uncertainty, negative sentiment and inverted curves.”

Fears that a global slowdown could eventually send the U.S. into recession have fueled market turbulence, with major averages all dropping more than 2% Wednesday amid the bond market tumult. The inversion actually had reversed heading into afternoon trading, but it was still enough to trigger fears on Wall Street following a raft of negative economic data out of Europe.

Signal is still a ‘yellow flag’

Despite the jolt to markets, the Fed for now is still expected to take a more gradual approach to rate cuts.

Market pricing Wednesday pointed to just a 19% chance of a 50 basis point cut at the September Federal Open Market Committee meeting, according to the CME. Traders are anticipating another reduction in October followed by an additional move late this year or early in 2020.

The yield curve inversion was not being viewed as an automatic recession indicator, despite its strong predictive power in the past. Market experts view this inversion as at least partially fueled by some elements that have not been present in previous cases.

“At a minimum, this is a yellow flag,” said Jason Draho, head of Americas asset allocation at UBS Global Wealth Management. “There are aspects of what’s going on that gives us a little more pause about how negative a signal this is, mostly due to technical factors.”

One of those factors, which Fed officials have cited at various times when discussing the flatness of the yield curve, is term premia.

That’s the compensation investors demand for holding assets like bonds. The term premium for the 10-year note has fallen to minus 1.22, according to a New York Fed estimate that is the lowest on record. In other words, investors are demanding a very low premium, putting further downward pressure on yields.

“I think they would want to get the curve not to be inverted,” Draho said. “If things get worse over the next few weeks in terms of economic data, in terms of trade tensions, it’s possible they could go 50 basis points in an effort to try to get ahead of it. Right now, I think they gradually move in that direction.”

To be sure, markets are far from sanguine about the inversion and what it will mean to a Fed divided between those who favor a more cautious approach that leaves policymakers with more ammunition in case of a steeper downturn against those who want to get out in front of potential problems ahead.

Market voices have been clamoring for lower rates, just nine months after the most recent hike as concerns mount over where things are heading.

David Rosenberg, the senior economist and strategist at Gluskin Sheff, warned clients in a note Wednesday against “folks [who] will continue to dream up ways to tell you to dismiss the message from the flat shape of the yield curve when instead it is them that you should dismiss.”

Should that message persists, it’s likely to get the Fed’s attention.

“The yield curve has been making it abundantly clear that short-term rates are too high,” U.S. Bank’s Merz said. “We’re seeing a lot of uncertainty and negative sentiment in the market. That, combined with the signal the curve has been sending for some time, could certainly influence the Fed to be more aggressive in their approach.”

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WeWork’s complex business in China, which it cites 173 times in S-1



A man enter the doors of the ‘WeWork’ co-operative co-working space in Washington, DC.

Mandel Ngan | AFP | Getty Images

Most big U.S. tech companies are either shut out of China or have been unable to get much traction there. For The We Company, it’s increasingly becoming a core market — and perhaps it’s most complex.

In The We Company’s 350-plus-page IPO prospectus on Wednesday, the company cited China 173 times. Most of those relate to ChinaCo, its joint venture in the world’s second-biggest economy that was set up in 2017. The We Company is the parent company of WeWork.

It’s obvious why WeWork would want a large footprint in China. As a company whose primary business is providing co-working spaces, WeWork sees in China’s rapidly growing technology sector as one of its most attractive growth opportunities anywhere around the globe. According to WeWork’s website, the company has 115 buildings across 12 cities in Greater China, about 15% of its total facilities.

But with that access comes a huge amount of economic and political risk. In addition to dealing with a country that, by many foreign policy experts, is considered the No. 1 adversary of the U.S., WeWork acknowledges that its operations in China are run by groups that it can’t control, that locals laws are different in terms of the length of leases and that it’s subject to the 2017 China Cybersecurity Law, which allows for government scrutiny of data storage and security.

Then there’s the Trump Administration’s inconsistent trade policy with China, which has been roiling U.S. markets of late.

“There are concerns regarding potential changes in the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs,” WeWork said in the risk factors of its prospectus. “The implementation by China or other countries of higher tariffs, capital controls, new adverse trade policies or other barriers to entry could have an adverse impact on our business, financial condition and results of operations.”

WeWork opened an operation in Shanghai in 2016, a year before creating a joint venture with $500 million in capital from Japan’s SoftBank, and Chinese firms Hony Capital and Trustbridge. WeWork owns 59% of ChinaCo, which is the exclusive operator of the company’s business in China, Hong Kong, Taiwan and Macau.

SoftBank Group founder, chairman and CEO Masayoshi Son announces his group’s earnings results on May 9, 2019, in Tokyo.

Alessandro Di Ciommo | NurPhoto | Getty Images

To date, the Chinese business is weighing on profitability, already the company’s biggest challenge — it lost $900 million in the first six months of 2019 on $1.54 billion in revenue. WeWork focuses on a metric it calls contribution margin, which is the revenue left from membership and services after subtracting operating expenses of those locations. For the first half of the year, the contribution margin was 25%, excluding certain costs.

“Excluding the China Region, our contribution margin percentage for the six months ended June 30, 2019 would have been approximately three percentage points higher,” WeWork said.

Still, China is quickly becoming a more material part of the business. Revenue there accounted for 5.5% of the total in 2018, up from 3.4% the prior year. Property and equipment there increased to 5% of the total from 2.2% over that stretch.

Starting in a few years, the ownership arrangement gets particularly complicated.

After the fifth anniversary of the 2017 financing round that set up the ChinaCo venture, WeWork has the option to purchase at fair value the whole entity in cash, stock or a combination. For a year following the five-year anniversary, the lead investor can choose to have ChinaCo go public in an IPO, be sold, or to sell its shares.

“The lead investor will only be able to exercise this liquidity event right if it retains all of its holdings” in the company, the filing says.

WATCH: How does WeWork work and why it is losing money

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Financials near correction as banks and money managers lead slide



A Citibank branch in Hong Kong.

Vincent Isore | IP3 | Getty Images

Slides in several top U.S. bank stocks pushed the entire financial sector into a correction on Wednesday as industry leaders like Morgan Stanley, Goldman Sachs and Wells Fargo fell further into bear markets.

The S&P 500 Financials Sector sank more than 3% on Wednesday and tumbled to a level 10% below its 52-week high, formally considered correction levels. The skid in the sector group was largely thanks to banks, whacked by both falling interest rates as well as an inverted yield curve.

Citigroup, J.P. Morgan Chase and Bank of America, though not yet in a bear market, were all in correction territory, down more than 10% from their 52-week highs.

Smaller, regional bank as tracked by the The SPDR S&P Regional Banking ETF fell into bear market level, down more than 20% from their recent highs. They are more susceptible to a squeeze in lending margins because they don’t have big capital markets businesses to offset it.

At their core, banks generate profit by lending money at a higher interest rate than at which they borrow. So, when the Treasury yield curve inverts, and long-term rates fall below short-term rates, lending institutions have little incentive to loan.

“Financial intermediaries such as banks and credit unions borrow short and lend long. Thus, when the yield on the former is above the latter, firms net interest margins compress,” Joseph Lavorgna of Natixis wrote on Wednesday.

“In the worst case, profitability turns negative. In the best case, there is non-price rationing of credit, meaning credit extension only goes to highest-rated borrowers,” he continued. “In either instance, the effect is to slow money and credit creation. In turn, economic output suffers.”

Goldman Sachs, J.P. Morgan Chase, Citigroup, Bank of America, Morgan Stanley and Wells Fargo are all down at least 8% in August, with consumer-lending oriented firms suffering the worst losses.

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