Market Beats | China Considers Sale of TikTok to Elon Musk; Trump Team Weighs Gradual Tariff Increases; Nvidia CEO Visits Major Chinese Cities; Meta to Cut 5% Lowest-Performers; S&P Downgrades LA Muni Bonds by Two Notches; BlackRock 20-Year Veteran Departs; LA Fires Cause Rents to Abnormally Spike

—— China Considers Sale of TikTok to Elon Musk; Trump Team Weighs Gradual Tariff Increases; Nvidia CEO Visits Major Chinese Cities; Meta to Cut 5% Lowest-Performers; S&P Downgrades LA Muni Bonds by Two Notches; BlackRock 20-Year Veteran Departs; LA Fires Cause Rents to Abnormally Spike

1. China Considers Sale of TikTok to Elon Musk

Chinese authorities are considering a scenario where Elon Musk might purchase the U.S. operations of TikTok, should the app face an irreversible ban, according to informed sources. While Beijing would prefer TikTok to stay under the control of its parent company, ByteDance Ltd., they are preparing for various outcomes amidst legal challenges to the ban, including an ongoing appeal to the U.S. Supreme Court. The court seemed inclined to support the ban during a January 10 hearing.

Discussions among senior Chinese officials include possible strategies for dealing with Donald Trump’s administration, one of which involves Musk, a significant Trump supporter who donated over $250 million to his re-election campaign and is poised to play a key role in enhancing governmental efficiency once the Republican assumes office.

The prospect of a deal with one of Trump’s key allies is seen as potentially favorable by the Chinese government, who is likely to influence the final decision on TikTok’s sale.

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2. Trump Team Weighs Gradual Tariff Increases

Members of President-elect Donald Trump’s incoming economic team are considering a plan to incrementally raise tariffs, a move designed to enhance negotiating power and mitigate inflation risks, according to sources close to the discussions.

The strategy under consideration would implement a series of gradually escalating tariffs, increasing by approximately 2% to 5% each month. This approach would leverage executive powers under the International Emergency Economic Powers Act. However, this proposal is still in the preliminary stages and has not been formally presented to Trump, indicating that it is early in the decision-making process.

Key advisers involved in shaping this plan include Scott Bessent, Trump’s nominee for Treasury Secretary; Kevin Hassett, poised to become the director of the National Economic Council; and Stephen Miran, nominated for the chairmanship of the Council of Economic Advisers.

The sources, who spoke on the condition of anonymity, highlighted that these discussions are part of internal deliberations still under development.

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3. Nvidia CEO Visits Major Chinese Cities

Nvidia Corp.’s CEO, Jensen Huang, is set to visit China this week amidst heightened tensions involving the tech company’s operations. His trip coincides with ongoing investigations by Beijing into Nvidia’s activities in China, as well as new restrictions imposed by Washington on the export of its AI chips.

Huang’s visit begins in Shenzhen around January 15, where he will partake in the annual Lunar New Year celebrations with Nvidia employees, just days before President-elect Donald Trump is inaugurated for a second term. His itinerary also includes stops in Shanghai and Beijing, according to sources who wished to remain anonymous. Later in the week, he is scheduled to travel to Taipei.

This tour comes at a crucial time for Nvidia, which is at the forefront of AI chip production and is caught in the crossfire of escalating tech conflicts between the U.S. and China.

The recent U.S. regulations targeting the sale of sophisticated AI chips, including those by Nvidia, have been criticized by the company. Nvidia argues that these limitations could undermine the competitiveness of U.S. firms in the global market.

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4. Meta to Cut 5% Lowest-Performers

Meta Platforms Inc. is planning to eliminate approximately 5% of its workforce, equating to around 3,600 jobs, as part of a new performance-based termination strategy, according to an internal memo circulated among employees.

Mark Zuckerberg, CEO of Meta, expressed in the memo—which was shared on an internal message board and reviewed by Bloomberg News—that the company aims to enhance its performance management by expediting the process of removing underperforming employees. “I’ve decided to raise the bar on performance management and move out low-performers faster,” Zuckerberg stated. Traditionally, Meta managed out employees who were not meeting expectations over the span of a year, but the company now intends to intensify these performance-based cuts during the current cycle, which concludes in February.

Employees in the U.S. who are affected by these cuts are expected to receive notification by February 10, while those based in other countries will be informed at a subsequent date. Only staff members who have been with the company long enough to undergo a performance review will be included in these terminations.

Zuckerberg assured that the company would offer “generous severance” similar to that provided in previous layoffs, to those who are let go.

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5. S&P Downgrades LA Muni Bonds by Two Notches

S&P Global Ratings recently downgraded the Los Angeles Department of Water and Power’s (LADWP) bond ratings, citing heightened risk due to the impact of devastating wildfires in the Los Angeles area. The utility’s power system bonds were lowered by two notches from AA- to A, reflecting increased financial vulnerabilities.

Furthermore, the rating on the utility’s water system revenue bonds also saw a two-notch downgrade, moving from AA+ to AA-. This decision comes as the market responds to the potential liabilities LADWP might face; bond prices have already begun to decline as investors reevaluate the risks following the wildfires.

While LADWP’s infrastructure has not been directly implicated in causing the current wildfires, the frequency and intensity of these disasters in its service area, particularly as they encroach upon more urban locations, have raised concerns about the utility’s exposure to financial liability claims.

These potential claims could surpass LADWP’s available liquidity and insurance coverage, according to Paul Dyson, a credit analyst at S&P Global Ratings. This situation underscores the escalating financial pressures utilities may face in regions prone to natural disasters.

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6. BlackRock 20-Year Veteran Departs

Mark Wiedman, a senior executive at BlackRock Inc. and once considered a potential successor to CEO Larry Fink, is departing the world’s largest asset manager. Wiedman has been integral to BlackRock for over two decades and has decided to explore new opportunities outside the firm.

Wiedman has played a pivotal role in various capacities during his tenure at BlackRock. He was instrumental in the early development of the firm’s extensive ETF business and was a founding member of its notable financial-markets advisory business, which has provided guidance to the Federal Reserve and the US government during financial crises. Additionally, he has been responsible for leading the company’s corporate strategy.

In his most recent role as head of the global client business, Wiedman managed relationships with key financial clients worldwide and spearheaded BlackRock’s initiatives towards transitioning to a low-carbon economy. His departure is part of a broader leadership reshuffle at BlackRock, with the firm expected to promote several executives to fill the vacuum his exit will create.

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7. LA Fires Cause Rents to Abnormally Spike

Los Angeles, a city already grappling with a severe housing affordability crisis, has seen its situation worsen dramatically following recent devastating wildfires. These fires have obliterated entire neighborhoods, exacerbating the housing shortage and sending prices soaring.

The impact on the real estate market has been immediate and severe. Michael Patrick, owner of LA Estate Rentals, which operates in some of LA’s most expensive areas, reports that daily inquiries have surged from around 50 to 500 in the aftermath of the fires. The demand has driven rental prices up significantly; for instance, a property in Beverly Hills originally rented for $35,000 a month saw its price increase to $40,000 before the lease was finalized post-fire.

Patrick described the current state of the real estate market as “disgusting,” pointing to rampant price gouging and likening the situation to an “eBay of homes,” where desperate bids escalate prices. This crisis is particularly acute given that the fires destroyed over 12,000 structures, displacing a vast number of residents across various income levels and intensifying the demand for housing in what was already one of the least affordable markets in the US.

The fires, which claimed at least 24 lives, have thus not only caused immediate physical and emotional devastation but have also deepened the city’s long-standing housing challenges.

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