Silicon Valley descends on Washington this morning for a brainstorming session at the White House on how to improve the government’s use of technology.
The first meeting of the American Technology Council will reportedly knock heads together on a broad range of issues aimed at modernizing government, issues as diverse as the Internet of Things, drone use, fraudulent government spending, and artificial intelligence.
If it can be tapped, the potential for constructive engagement here is a powerful antidote to the tensions caused by the President’s decision to withdraw from the Paris Climate Accord and his determination to clamp down on visa allocations for foreign IT specialists, both of which have played badly in the Valley, albeit for different reasons.
The guest list is impressive, featuring Apple CEO Tim Cook, Microsoft’s Satya Nadella, Oracle’s Safra Katz, Palantir’s Alex Karp and Intel’s Brian Krzanich, to name but a few. Notable absentees include Elon Musk and Travis Kalanick and (for reasons of scheduling, according to the WSJ) Salesforce’s Marc Benioff.
There will also be a very, very large elephant in the room: the President’s tax reform plan. The administration is itching to put to use the hundreds of billions of dollars in profits held offshore by companies like Apple and Microsoft. But the cut in statutory tax rates that is needed to bring this money back into the country is only one piece of a complex puzzle, and the latest reports suggest that the other pieces of that puzzle are as far as ever from falling into place.
Senate Majority Leader Mitch McConnell is openly admitting that there is not enough support for the Border Adjustment Tax that is supposed to offset the loss of revenue from a cut in statutory tax rates. Even its biggest cheerleader in the House, the Texan Republican Kevin Brady, says he’s open to other ideas after his proposal last week for a five-year phase-in of the BAT met with a reception politely described as ‘mixed.’
Brady, like most of the administration, styles the BAT as a way of stopping jobs draining away from the U.S.. But as a report from the Bank for International Settlements pointed out yesterday, the biggest threat to the jobs that exist today is not globalization but, of course, technology (a reality soon to overtake, for example, the cashiers at Whole Foods).
It will take more than a few meetings of the American Technology Council to find the answer to that particular conundrum.
More news below.
(Alan Murray is taking a hard-earned break and will return on Monday)
• Markets Still Digesting the Whole Foods Story
Amazon intends to use its technology to bring Whole Foods’ famously high prices down, according to a Bloomberg source. Job cuts—notably among in-store cashiers—and better inventory management are likely to figure high in the list of priorities. Amazon denies planning any job cuts. The news of the deal, which sent food retailers’ stocks crashing across the world on Friday, is still weighing on the sector Monday. Europe-based Tesco, Sainsbury, Ahold Delhaize, and Carrefour have all only recovered a fraction of their losses. Meanwhile, Neuberger Berman, one of the activist investors with a big stake in Whole Foods, is talking up the possibility of a defensive counterbid from a traditional retailer with a strategic interest in keeping Amazon out.
• Boeing, Lockheed Hopes High at Paris Airshow
Boeing is set to launch the new version of its short-haul warhorse, the 737 MAX 10, at this week’s Paris Airshow, with Reuters sources saying it could announce orders for around 150 planes. While that won’t change the overall picture of a civil market cooling off after a long boom, it does at least keep the mood music positive. Of more significance, arguably, will be how Lockheed Martin manages the debut of the F-35 fighter. Reuters reports that it is in the final stages of negotiations to sell some 440 F-35s to a total of 11 countries (which will put another wrench in France’s plans to boss the consolidation of Europe’s defense sector).
• A Second Source of Concern for the Economy
It’s not just the auto market. Away from the noise of Capitol Hill, the signs of weakness in another big part of the economy—housing—are on the rise. Housing starts fell to their lowest in eight months in May, despite the consensus view that supply in the market is relatively tight (Zillow CEO Spencer Rascoff told Fortune last week that prices are up 7% on a year ago). It was the third monthly drop in a row for a sector that accounts for the biggest single chunk of private investment. Building permits, a more forward-looking indicator, also fell 4.9% in May. The eagle-eyed will have noticed that both housing and car purchases are interest rate-sensitive, and the latest data from both sectors reinforce suspicions that the effect of every Fed hike is having more of an impact on consumers than would have been expected in the pre-crisis world.
WSJ, subscription required
• Macron Sweeps Parliamentary Election
Emmanuel Macron completed his stunning overthrow of the French political establishment, as his one year-old party La République en Marche won a thumping majority in the French assembly. Macron will face little opposition in parliament to the sweeping reforms of the tax and labor codes, which analysts reckon will boost the country’s long-term growth outlook and trim its jobless rolls. It should also be big enough to ride out the inevitable street protests that will accompany the reform bills as they are passed (a low turnout of 43.4% suggests his mandate is less strong than it looks). French stocks hit a new nine-year high on opening, pulling other European markets higher in their wake.
Around the Water Cooler
• U.K. Stumbles up to the Brexit Start Line
Almost a year after the U.K. voted to leave the EU, the two sides began formal talks on how to settle their accounts and co-exist in future. The EU wants a big financial settlement up front before it starts talking about future trade arrangements. The U.K.’s position is still thoroughly unclear, after a general election that resoundingly failed to deliver a mandate for the ‘Hard Brexit’ favored by Theresa May and the right wing of her party. Emboldened by the election result, business groups and pro-Remain Tories have rediscovered their voice. They’re again pressing for lengthy transitional arrangements to cushion the impact. ‘Brexiteers’ fear such soft-pedalling will be a preamble to abandoning the project altogether.
• Lyft Rises as Uber Falls
The series of PR disasters and governance scandals at Uber is starting to take a toll on its business performance. The Financial Times cites data from research firm Second Measure showing that its U.S. market share fell to 77% in May from 84% at the start of the year. The biggest beneficiary has been Lyft, which argues that the data understate its gains. Uber’s revenue still dwarfs that of its rival, but its growth in the U.S. is slowing—from an annual rate of 55% a year ago to ‘only’ 40% as of May.
• Endgame for ISIS
As the territory under Islamic State control is whittled down, external powers are jockeying for position in the post-ISIS landscape. A U.S. warplane shot down a Syrian government jet Sunday, according to the Pentagon, the first time that the U.S. military has directly targeted President Assad’s forces. The Pentagon said the incident happened after regime troops attacked the U.S.-backed Kurdish and Arab militias pushing into the ISIS capital of Raqqa. Later the same day, Iran’s Revolutionary Guards launched multiple missile strikes on an ISIS stronghold, in retaliation for the attacks in Tehran two weeks ago. Elsewhere, Iraqi government troops pushed further into the Old City of Mosul, aiming to complete the recapture of Iraq’s second city after an eight-month siege.