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Apple shares collapsed earlier this month after warning that iPhone sales would fall short because of weakness in the China economy.

Starbucks will be next, according to Goldman Sachs.

The firm downgraded the world’s largest coffee seller to neutral from buy on Friday, citing “a number of points of caution on China.”

“The recent AAPL (Apple) announcement (while potentially also product-driven) cited trade concerns/macro, and MCD (McDonald’s) acknowledged softer trends in the region at a late November event,” wrote analyst Karen Holthouse in a note to clients. “The GS macro team also expects a continued slow down in GDP, at least partially driven by consumption.”

Goldman also lowered its price target on Starbucks to $68 from $75. The shares fell more than 2 percent in premarket trading Friday to $62.51 following the Goldman call.

Starbucks has 3,600 stores in China and wants to double that number in the next four years. Goldman noted the stock has doubled the return of the S&P 500 since the firm added Starbucks to its buy list in late 2014 so now is a good time to take some profits.

Goldman also downgraded shares of Yum Brands to sell on Friday, citing valuation and concerns about U.S. sales momentum at Pizza Hut and Taco Bell.

The firm lowered its price target on Yum to $76 from $83. The stock fell 2 percent in premarket trading Friday to $89.75.

With reporting by Michael Bloom

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Germany should heed call of its worried business community: Commentary

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A worker at the Siemens gas turbine factory on January 8, 2010 in Berlin, Germany.

Sean Gallup | Getty Images

Germany accounts for nearly 30% of a monetary union consisting of 19 European economies. That’s how dangerous it is to see the world’s fourth-largest economy stuck in a virtually stagnant quarterly pace during the 12 months to March.

And here’s more: Measured at annual rates, the German economy at the beginning of this year was moving along at less than half the capacity of its potential and non-inflationary growth rate — a monumental waste of the country’s human and physical capital.

The German business community is blaming the government for high corporate taxes (31% compared with a European average of 22%), high energy costs, inadequate digital infrastructure, lack of high-speed fiber optic connections in most of the country’s industrial parks, unclear economic and political orientations, and more.

Exports should not be the only way out

At their meeting earlier this month, the members of a powerful Federation of German Industries (Bundesverband der Deutschen Industrie – BDI) voiced their declining confidence in government policies at a time when they were facing increasing pressures from Chinese and American competitors. That’s what they told an uneasy audience of 1,500 people, headed by German Chancellor Angela Merkel and her economic and finance ministers.

German businesses wanted no “national champions” and bureaucratic meddling. They asked for effective economic and financial policies to support small- and medium-sized companies — the country’s celebrated Mittelstand — that represent 99% of German companies, generate about three-quarters of all jobs, and account for more than half of the nation’s GDP.

They probably knew they were asking far too much of a moribund governing coalition, trashed in recent European parliamentary elections and facing a certain demise if the wishes of 52% of German voters were met for new national elections.

That should be an urgent consultation because, according to the latest opinion polls, Germany has a minority government with the center-right parties — Merkel’s Christian Democratic Union (CDU) and its sister party, Christian Social Union (CSU) — polling 24%. The junior coalition partner, Social Democrats, polled 13%.

That was a gloomy business meeting in Berlin. But suddenly, and very curiously, people cheered up to give a standing ovation to the French Economy and Finance Minister, Bruno Le Maire.

Speaking in German, the French official apparently struck a chord by pleading for a European response to American and Chinese challenges. France and Germany, he said, should act together in the spirit of “complementarity” rather than “rivalry” to stay ahead in emerging new areas of top technologies.

The French were also pleased with a call for revival of a wobbly French-German partnership. After two years of constant prodding, Germany relented last Friday to approve the French project of a euro area budget. But instead of calling it a budget and agreeing to hundreds of billions of euros demanded by the French, Paris had to settle for the new “budgetary instrument for competitiveness and convergence” with only 17 billion euros ($19.08 billion) over a period of seven years.

A Pyrrhic victory of sorts, because that will get new votes for the eurosceptic Marine Le Pen’s National Rally (RN) to see Paris acting as Berlin’s junior partner subservient to German interests.

France will pay

Yes, President Emmanuel Macron and Le Maire have nothing to cheer about watching the German confusion and disarray that will end up exacting a large cost in terms of French jobs and incomes.

France and the rest of Europe — and, incidentally, the U.S., too — should have expected Germany to rev up its economy and buy more goods and services from its main trade partners. With a budget surplus of 1.7% of GDP, public debt of 60.9% of GDP, and a trade surplus on goods and services of 8% of GDP, Germany was supposed to lead the European (and global) economic recovery by stimulating its domestic spending and opening up its markets.

But that won’t happen. As always, France, the rest of Europe and the U.S. will foot the bill of German economic revival as German companies step up their sales on external markets to survive. That’s called Germany’s export offensive – big time.

Countries like France and the U.S., with a typically low political tolerance for weak economic growth, will suffer the most from the onslaught of German companies’ export sales. Washington can still do something to scare them off, but there is nothing that France can do in a perfectly functioning customs union with its neighbors across the Rhine river.

Here is an example of how that goes. In the last two quarters, the beleaguered French government boosted public spending and wage growth to calm an ongoing public unrest. As a result, the rate of French economic growth during that period was double that in Germany. Predictably, German exports to France picked up at an annual rate of 3% in the six months to April, after virtually no growth during 2018.

No wonder German business leaders gave a standing ovation to the French finance minister. That could have sounded like an encouragement to keep up the good work by spending the money he did not have, and messing up the French public finances in the process.

Germany will call him out on that later this year.

Berlin, and its Brussels sidekicks, are just too busy now setting up Italy for penalties and disciplinary procedures for its excessive public debt and an intolerably high budget deficit of 2.4% of GDP – unless U.S. President Donald Trump tweets to save the day for his Roman friends. Bravely looking at a budget deficit increase of 77% in the first four months of the current fiscal year, Trump could probably scare the Germans with a tweet to lay off the struggling Italians.

Investment thoughts

The European Central Bank President Mario Draghi should not worry about central and eastern Europeans being vulnerable to ongoing global trade disputes. Those people know all about hardship and sacrifice. Instead, Draghi should call out Germany’s destabilizing mercantilism.

Incidentally, Draghi could also say a thing or two about French fiscal policies. That would calm down France’s newfound ardor to lecture about the fictional European sovereignty and Rome’s public finances, even though Italy’s headline and primary budget balances look much better than those in France.

Germany is Europe’s big economic problem, but nobody, except Washington, dares say so.

The German DAX equity index is down 10.5% in dollar terms over the last 12 months. By comparison, the 4% gain on the Dow Jones Industrial Average looks like a stellar performance.

Maybe, at some point, somebody in Germany will care about that and heed the call for help from a deeply worried German business community.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.

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Chinese activists seek UN investigation into Tiananmen crackdown

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A member of the Chinese People’s Armed Police stands guard in front of a portrait of former Chinese leader Mao Zedong displayed on Tiananmen Gate, covered in scaffolding, in Beijing, China, on Monday, May 27, 2019.

Giulia Marchi | Bloomberg | Getty Images

More than 20 Chinese activists who took part in the Tiananmen Square pro-democracy movement called on Monday on the United Nations’ top human rights body to investigate Beijing’s deadly crackdown 30 years ago.

Wang Dan and 21 others, backed by the group Chinese Human Rights Defenders, said they had submitted the complaint to the U.N. Human Rights Council, a Geneva forum which opens a three-week session on June 24.

“We request the HRC investigate the gross violations of human rights and fundamental freedoms committed by the Chinese government during its military assault on peaceful protests,” they said in statement.

They also sought action over “the consistent pattern of human rights violations in persecuting Chinese citizens during the past three decades who broke the silence” about the events of June 3-4, 1989.

The anniversary remains taboo in China. Beijing has not held a public inquiry nor permitted an independent investigation, the statement said.

Beijing enjoys strong support among developing countries at the Human Rights Council, a 47-member state forum that has never adopted a resolution on China since being set up in 2006.

A Council spokesman was not in a position to provide any information, noting that communications lodged via the complaint procedure were confidential.

“The massacre 30 years ago has not ended yet. The Chinese government even determined that the victims were criminals and a large number of exiles are still deprived of their right to return to their own country,” said Wang, who lives in the United States.

China has never provided a death toll for the 1989 violence, but rights groups and witnesses say it could run into the thousands. 

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Stocks in Asia Pacific set to trade mixed as investors await Fed meeting

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Stocks in Asia were poised to trade mixed on Monday as investors look ahead toward a U.S. Federal Reserve meeting set to happen later in the week stateside.

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