Job openings fall amid Fed efforts to cool labor market

Workers sort packages at a FedEx Express facility on Cyber Monday in Garden City, New York, on Monday, Nov. 28, 2022.

Michael Nagle | Bloomberg | Getty Images

Job openings dipped in October amid the Federal Reserve’s efforts to cool off a red-hot employment market, the Labor Department reported Wednesday.

The Job Openings and Labor Turnover Survey, a closely watched gauge of slack in the labor force, showed there were 10.3 million vacancies for the month. That’s a decline of 353,000 from September and down 760,000 compared to a year ago.

That left 1.7 job openings per available worker for the month, down from a 2 to 1 ratio just a few months ago.

The Fed has instituted a series of rate hikes aimed at bringing down runaway inflation. One area of particular focus has been the ultra-tight jobs market, with a 3.7% unemployment rate and wage gains that are helping to fuel price pressures.

While the monthly numbers can be volatile, the JOLTS report provided at least some measure that the Fed’s inflation-fighting efforts could be having an impact. The report came the same day that payroll processing firm ADP reported job gains of just 127,000 in November, the lowest total since January.

The quits level, a measure of worker confidence that they can easily move from one job to another, also declined, edging lower to 4.026 million, down 34,000 from a month ago and well below the record 4.5 million in November 2021 during what had been dubbed “The Great Resignation.”

Total separations nudged higher to 5.68 million while layoffs and discharges also rose, up 58,000 to 1.39 million.

The Labor Department on Friday will release payroll growth numbers for December. Economists expect job growth of 200,00 for the month, according to Dow Jones estimates.

CrowdStrike stock down on earnings, Morgan Stanley says buy the dip

George Kurtz, chief executive officer of CrowdStrike Inc., speaks during the Montgomery Summit in Santa Monica, California, U.S., on Wednesday, March 4, 2020. The Montgomery Summit gathers entrepreneurs, investors, and executives to discover the most important innovations in business and technology.

Patrick T. Fallon | Bloomberg | Getty Images

CrowdStrike shares fell about 19% on Wednesday morning, a day after the cybersecurity company reported third-quarter results that said new revenue growth was weaker than expected.

CrowdStrike reported annual recurring revenue (ARR) of $2.34 billion, up 54% year over year. More than $198 million was net new ARR added in the quarter, which ended Oct. 31. The company also added 1,460 net new subscription customers for the quarter.

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CEO George Kurtz said in a release that the company’s total net new ARR was below expectations. Last year, CrowdStrike’s ARR increased by more than 67% in the third quarter, and the company added 1,607 net new subscription customers for that same period.

Analysts at Morgan Stanley also said CrowdStrike’s results were “disappointing,” but they said estimates did not reflect the current macroeconomic environment. They encouraged investors to buy the sell-off in a Wednesday note. 

“With forward estimates appropriately level set, we think this pullback provides an attractive entry point to accumulate shares in a premier SaaS security franchise,” they said.

An analyst at Stifel said CrowdStrike’s results were “disappointing” and downgraded the stock from buy to hold.  

“Although management’s preliminary CY24 outlook was below consensus, we believe it could take a few quarters until expectations are fully de-risked, and as a result, we lower our rating to Hold,” they wrote in a Tuesday note. 

CrowdStrike’s stock is down more than 32% this year, and the analyst expects further downside ahead after the company issued light guidance. The analyst’s $120 price target, slashed from $225, is about 13% below where shares closed Tuesday.

Needham analysts said they remain a “convinced buyer” of CrowdStrike for the long term.

They believe the company’s slower guidance opened a “can of worms” about bear market concerns, but they said they think most of those concerns are “misplaced.”

“We suspect CRWD will find itself in the penalty box into year-end despite its strong growth, operating leverage and Cash Flow as investors worry about lengthening deal cycle time and potential for further deceleration,” they wrote Wednesday. “We remain positive on CRWD.”

—CNBC’s Michael Bloom contributed to this report. 

Private hiring increased by just 127,000 jobs in November, well below estimate, ADP reports

Private hiring slowed sharply during November in a sign that the historically tight labor market could be losing some steam, according to a report Wednesday from payroll processing firm ADP.

Companies added just 127,000 positions for the month, a steep reduction from the 239,000 the firm reported for October and well below the Dow Jones estimate for 190,000. It also was the lowest total since January.

The relatively weak total comes amid Federal Reserve efforts to loosen up a jobs picture in which there are still nearly two open positions for every available worker. The central bank has raised its benchmark borrowing rate six times this year, but the unemployment rate is still 3.7%, near the lowest since 1969.

“Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said ADP’s chief economist, Nela Richardson. “In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”

The ADP report comes two days before the Labor Department releases its more closely watched nonfarm payrolls count. Economists polled by Dow Jones expect that report to show a gain of 200,000 after an increase of 261,000 in October.

In the ADP report, the biggest sector gainer by far was leisure and hospitality, which saw an increase of 224,000.

However, that was offset by losses in manufacturing (-100,000), professional and business services (-77,000), financial activities (-34,000), and information services (-25,000). Goods-producing industries overall saw a decline of 86,000 jobs, while services firms added 213,000 on net.

Even with the shaky jobs numbers, salaries continued to climb.

Pay increased 7.6% from a year ago, ADP said, though that was a slightly slower pace than the 7.7% reported for October.

From a size standpoint, all of the job creation came from companies that employ 50-499 workers, a sector that added 246,000 jobs. Small companies lost 51,000 while big firms were off 68,000.

Mortgage rates fall for the third straight week, but demand still drops further

A For Sale sign appears in front of a house on Oak Street in Patchogue, New York, on May 17, 2022.

Steve Pfost | Newsday | Getty Images

Mortgage rates soared over 7% just a month ago, but since then they have fallen more than half a percentage point. Still, mortgage loan application volume decreased 0.8% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The results also include an adjustment for the observance of the Thanksgiving holiday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.49% from 6.67%, with points remaining at 0.68 (including the origination fee) for loans with a 20% down payment.

The weakness continues to be in refinance demand, which dropped 13% from the previous week and was 86% lower than the same week one year ago. Strange, given that roughly 100,000 more current borrowers could now benefit from a refinance with the latest rate drop, according to Black Knight.

Mortgage applications to purchase a home gained 4% from the previous week but demand was 41% lower than the same week one year ago. Sales of existing homes continue to drop, while newly built home sales are benefiting from builder concessions, specifically deals in which the builder buys down the mortgage rate.

“The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes. Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity,” noted Joel Kan, an MBA economist.

The adjustable-rate mortgage share of application activity increased slightly to 9%, which is lower than the roughly 12% range a month ago, when rates were higher. The ARM share, however, was about 3% at the start of this year, when the 30-year fixed rate hovered near a record low. ARM’s offer lower interest rates but higher risk.

Mortgage rates haven’t moved much to start this week, but by the end of the week that could change, as the highly anticipated monthly employment report is set for release. Any unanticipated swing in either direction will have a direct effect on mortgage rates.

XPeng (XPEV) Q3 earnings: Revenue, profit miss expectations

XPeng has been dealing with rising material costs, which forced the company to hike the price of its cars earlier this year.

Chen Yihang | Visual China Group | Getty Images

Chinese electric carmaker XPeng posted a wider than expected loss and its revenue fell short of expectations — thanks to rising competition and a tougher macroeconomic environment.

XPeng shares were 10% higher in premarket trade in the United States.

Here’s how it did in the third quarter of 2022, compared with Refinitiv consensus estimates: 

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  • Revenue: 6.82 billion Chinese yuan ($960.9 million) versus 7.26 billion yuan expected. That represents a 19.3% year-on-year rise.
  • Net loss: 2.38 billion Chinese yuan versus 2.09 billion yuan expected. That was wider than the 1.59 billion net loss posted in the same period last year, but narrower than the second quarter.

XPeng delivered 29,570 electric vehicles in the third quarter, 15% more than the same period last year. However, that was a 14% decrease from the second quarter of the year.

In October, XPeng delivered 5,101 vehicles, a sharp drop from the 8,468 cars delivered in September.

The Guangzhou-headquartered firm has faced several challenges in recent months, including widespread Covid lockdowns in China as the country battles outbreaks in various cities. Like other carmakers, XPeng has been dealing with rising material costs, which forced the company to hike the price of its cars earlier this year.

The company expects to deliver between 20,000 and 21,000 of its cars in the fourth quarter, representing a year-over-year decrease of approximately 49.7% to 52.1%.

XPeng shares have been hammered this year and are down 85% as investors turned away from Chinese growth stocks amid a slowdown in the economy and rising interest rates around the world.

A number of analysts have cut their target share price for the company. This week, Jefferies cut its target price on XPeng’s stock from $18.6 to $4.20.

FTX loss is ‘disappointing and being taken seriously’: Singapore’s DPM

Lawrence Wong, Singapore’s finance minister, speaks during the Bloomberg New Economy Forum in Singapore, on Thursday, Nov. 17, 2022.

Bryan van der Beek | Bloomberg | Getty Images

Temasek’s investment loss of $275 million in the collapse of cryptocurrency exchange FTX was “disappointing” and damaging for Singapore, said Deputy Prime Minister and Finance Minister Lawrence Wong.

Speaking in Parliament on Wednesday, Wong said that the losses Singapore’s sovereign wealth fund suffered were “being taken seriously.”

But the investment losses don’t mean the governance system is not working, he said. “Rather, it is the nature of investment and risk-taking.”

Temasek announced in mid-November that it will be writing down the value of its investment in FTX to zero, “irrespective of the outcome of FTX’s bankruptcy protection filing.” Temasek also said that they currently have no direct exposure in cryptocurrencies.

What happened with FTX therefore has not only caused financial loss to Temasek, but also reputational damage.

Lawrence Wong

Deputy Prime Minister, Singapore

FTX has more than 100,000 creditors as well as liabilities in the range of $10 billion to $50 billion, according to a bankruptcy filing.

“What happened with FTX therefore has not only caused financial loss to Temasek, but also reputational damage,” Wong said.

“Temasek recognizes this and has issued a comprehensive statement to explain its due diligence process and the circumstances leading to its investment in FTX,” he said, adding that an internal review is being conducted to study what went wrong with the FTX deal and how to improve the process.

He said the government does not prescribe guidelines on the allocation of specific assets or asset classes, whether for cryptocurrencies or other assets.

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Ultimately, the government holds the boards and management teams responsible for formulating investment strategies in accordance with the government’s overall risk tolerance, he said.

“What is important is that our investment entities take lessons from each failure and success, and continue to take well-judged risks in order to achieve good overall returns in the long term,” Wong said in response to Members of Parliament’s questions.

“In this way, we can continue to add to our national reserves and provide a stable income stream to fund government programs for a long time to come.”

He pointed out that despite the writing off of the FTX investment, Temasek’s early-stage portfolio, as of March, generated an internal rate of return in the mid-teens over the last decade — better than the industry average.

The FTX loss will also not impact the net investment returns of Singapore’s reserves, which are “tied to the overall expected long term returns of our investment entities and not to individual investments.”

The minister said that going forward, the Monetary Authority of Singapore — the country’s financial regulator and central bank — plans to introduce some basic investor protection measures for digital payment token service providers which are licensed in Singapore.

After receiving industry and public feedback, MAS will finalize the proposals and implement appropriate regulatory measures.

But he cautioned that even with these measures, the monetary authority will not be able to prevent crypto service providers from failing.

“Those who trade cryptocurrencies must be prepared to lose all their value. No amount of regulation can remove this risk,” he warned.

ECB to announce QT program details at December meeting

Christine Lagarde, president of the European Central Bank speaks at an event. The central bank is due to meet in mid-December for more monetary policy decisions.

Bloomberg | Bloomberg | Getty Images

The European Central Bank could be about to answer a lingering question in the coming weeks that could have major repercussions for financial markets.

At its December meeting, the ECB is set to discuss and reveal more concrete details on how it will unwind 8.8 trillion euros ($9.21 trillion) from its balance sheet — in a process known as quantitative tightening.

For years, the central bank has been ultra loose with its monetary policy, buying sovereign debt across Europe to keep borrowing costs low for governments and, subsequently, for individuals to help stimulate growth.

However, with inflation at record highs and a number of rate hikes under its belt, markets are now awaiting details on how and when the ECB will sell these bonds.

“The biggest question in December is what they’ll do regarding QT,” Marchel Alexandrovich, European economist at Saltmarsh Economics, told CNBC over the phone.

Back in October, ECB President Christine Lagarde said the discussions over bond sales will consider three main factors: the inflation outlook, the measures taken so far, and the transmission lag — given that it takes a while for any monetary decision to have an impact on the economy.

Speaking Monday, Lagarde confirmed the timeline. “In December, we will also lay out the key principles for reducing the bond holdings in our asset purchase program portfolio,” she told European lawmakers.

‘Measured and predictable’

ECB officials have suggested that the process will be “gradual” and “predictable” — meaning it’s not likely to be meeting dependent.

At the moment, the central bank is applying a meeting-by-meeting approach to interest rate decisions, arguing there is a high degree of uncertainty preventing it from guiding the markets with more detail in the medium term.

“It is appropriate that the balance sheet is normalized over time in a measured and predictable way,” Lagarde said Monday.

As such, economists do not expect every detail to be outlined in December.

“In December, the ECB will lay out some general principals about how it intends to conduct QT but not yet specify the precise amounts and timings of the balance sheet run-off,” Franziska Palmas, senior Europe economist at Capital Economics, said via email.

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She added that the upcoming changes to the balance sheet will likely be applied only to the APP (Asset Purchase Program) holdings and not to PEPP (Pandemic Emergency Purchase Program).

APP started in mid-2014 to deal with persistently low inflation levels. It was frozen between January and October 2019 and then lasted until July 2022. On the other hand, PEPP was a more flexible bond purchase program introduced during the coronavirus pandemic.

As part of the broader stimulus actions, the ECB has been reinvesting profits it made during these asset purchases. Instead of starting to unwind its balance sheet by selling the actual bonds, some expect the ECB to stop these reinvestments.

“The ECB will shrink APP holdings only by ceasing to reinvest the proceeds of maturing APP assets, not by actively selling them. The pace of QT may be particularly slow initially, with the ECB still reinvesting the majority of the proceeds from maturing assets,” Palmas said.

Economists at Nomura also expect the ECB to slow down these reinvestments as a first step in reducing its balance sheet.

“We believe the ECB will allow only 1/3 of APP portfolio redemptions to be rolled off, with the remainder reinvested,” they said in a research note after the last ECB meeting. This is seen starting in the second quarter of 2023, according to the same note.

Frederik Ducrozet, the head of macroeconomic research at Pictet Wealth Management and an avid ECB watcher, said the bank “will probably introduce so-called caps on monthly reinvestments under the APP programme, up to which the ECB will stop reinvesting the proceeds of maturating securities.”

He added that this would likely start in March.

The ECB’s cumulative net purchases of government debt as of October 2022 stood at 2.74 trillion euros.

Why investors worry about the euro

Transitory inflation talk is back. But economists say higher prices here to stay

Prices of fruit and vegetables are on display in a store in Brooklyn, New York City, March 29, 2022.

Andrew Kelly | Reuters

Global markets have taken heart in recent weeks from data indicating that inflation may have peaked, but economists warn against the return of the “transitory” inflation narrative.

Stocks bounced when October’s U.S. consumer price index came in below expectations earlier this month, as investors began to bet on an easing of the Federal Reserve’s aggressive interest rate hikes.

While most economists expect a significant general decline in headline inflation rates in 2023, many are doubtful that this will herald a fundamental disinflationary trend.

Paul Hollingsworth, chief European economist at BNP Paribas, warned investors on Monday to beware the return of “Team Transitory,” a reference to the school of thought that projected rising inflation rates at the start of the year would be fleeting.

The Fed itself was a proponent of this view, and Chairman Jerome Powell eventually issued a mea culpa accepting that the central bank had misread the situation.

“Reviving the ‘transitory’ inflation narrative might seem tempting, but underlying inflation is likely to remain elevated by past standards,” Hollingsworth said in a research note, adding that upside risks to the headline rate next year are still present, including a potential recovery in China.

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“Big swings in inflation highlight one of the key features of the global regime shift that we believe is underway: greater volatility of inflation,” he added.

The French bank expects a “historically large” fall in headline inflation rates next year, with almost all regions seeing lower inflation than in 2022, reflecting a combination of base effects — the negative contribution to annual inflation rate occurring as month-on-month changes shrink — and dynamics between supply and demand shift.

Hollingsworth noted that this could revive the “transitory” narrative” next year, or at least a risk that investors “extrapolate the inflationary trends that emerge next year as a sign that inflation is rapidly returning to the ‘old’ normal.”

These narratives could translate into official predictions from governments and central banks, he suggested, with the U.K.’s Office for Budget Responsibility (OBR) projecting outright deflation in 2025-26 in “striking contrast to the current market RPI fixings,” and the Bank of England forecasting significantly below-target medium-term inflation.

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The skepticism about a return to normal inflation levels was echoed by Deutsche Bank. Chief Investment Officer Christian Nolting told CNBC last week that the market’s pricing for central bank cuts in the second half of 2023 were premature.

“Looking through our models, we think yes, there is a mild recession, but from an inflation point of view,” we think there are second-round effects,” Nolting said.

He pointed to the seventies as a comparable period when the Western world was rocked by an energy crisis, suggesting that second-round effects of inflation arose and central banks “cut too early.”

“So from our perspective, we think inflation is going to be lower next year, but also higher than compared to previous years, so we will stay at higher levels, and from that perspective, I think central banks will stay put and not cut very fast,” Nolting added.

Reasons to be cautious

Some significant price increases during the Covid-19 pandemic were widely considered not to actually be “inflation,” but a result of relative shifts reflecting specific supply and demand imbalances, and BNP Paribas believes the same is true in reverse.

As such, disinflation or outright deflation in some areas of the economy should not be taken as indicators of a return to the old inflation regime, Hollingsworth urged.

What’s more, he suggested that companies may be slower to adjust prices downward than they were to increase them, given the effect of surging costs on margins over the past 18 months.

Although goods inflation will likely slow, BNP Paribas sees services inflation as stickier in part due to underlying wage pressures.

“Labour markets are historically tight and – to the extent that there has likely been a structural element to this, particularly in the U.K. and U.S. (e.g. the increase in inactivity due to long-term sickness in the UK) – we expect wage growth to stay relatively elevated by past standards,” Hollingsworth said.

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China’s Covid policy has recaptured headlines in recent days, and stocks in Hong Kong and the mainland bounced on Tuesday after Chinese health authorities reported a recent uptick in senior vaccination rates, which is regarded by experts as crucial to reopening the economy.

BNP Paribas projects that a gradual relaxation of China’s zero-Covid policy could be inflationary for the rest of the world, as China has been contributing little to global supply constraints in recent months and an easing of restrictions is “unlikely to materially boost supply.”

“By contrast, a stronger recovery in Chinese demand is likely to put upward pressure on global demand (for commodities in particular) and thus, all else equal, fuel inflationary pressures,” Hollingsworth said.

A further contributor is the acceleration and accentuation of the trends of decarbonization and deglobalization brought about by the war in Ukraine, he added, since both are likely to heighten medium-term inflationary pressures.

BNP maintains that the shift in the inflation regime is not just about where price increases settle, but the volatility of inflation that will be emphasized by big swings over the next one to two years.

“Admittedly, we think inflation volatility is still likely to fall from its current extremely high levels. However, we do not expect it to return to the sorts of levels that characterised the ‘great moderation’,” Hollingsworth said.

Why everyone is so obsessed with inflation

Drug overdose deaths among seniors have more than tripled in 2 decades

Deaths from drug and alcohol use are rising among America’s seniors.

Drug overdose deaths more than tripled among people age 65 and older during the past two decades while deaths from alcohol abuse increased more than 18% from 2019 to 2020, according to data published Wednesday by the National Center for Health Statistics.

More than 800,000 seniors suffered from drug addiction and 2.7 million suffered from alcohol addiction in 2020, according to separate data from the Health and Human Services Department.

In total, more than 5,000 seniors died of drug overdoses in 2020 and more than 11,600 succumbed to alcohol, according to the NCHS data. Though drug overdose death rates are lower for seniors than other age groups, they have increased substantially from 2.4 per 100,000 in 2000 to 8.8 per 100,000 in 2020.

“We’ve got a public health problem coming at our door — these trends have been increasing for a long time now,” said Alexis Kuerbis, a professor at the Silberman School of Social Work and an expert on substance use among older adults.

Seniors today are baby boomers, a generation that had a much more open attitude toward drugs and alcohol than their parents, Kuerbis said. Some baby boomers have carried alcohol and drug habits from their youth and middle age into their later years when their bodies are no longer able to tolerate them, she said.

“Baby boomers obviously are very different generation than the silent generation or the World War II generation,” Kuerbis said. “Baby boomers were far more open to using alcohol and drugs during their younger years but also through their middle-aged years and now they are older adults,” she said.

Deaths from fentanyl and other synthetic opioids increased 53% among seniors from 2019 to 2020, according to the data. Kuerbis said there’s some evidence to suggest people who were prescribed opioids in their middle age for an injury later switched to fentanyl once it became harder to get a prescription.

If you are having suicidal thoughts or are in distress, contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.

While some drug deaths among seniors are from accidental misuse of drugs, many are suicides from overdosing on opioids, Kuerbis said. Although seniors tend to be happier than younger adults, they also have a higher prevalence of chronic pain, terminal illness and dementia, she said.

Some older adults also use drugs or alcohol to cope with major life changes such as retirement, grief and loss, or a change in their living situation, according to the National Institute of Drug Abuse.

Drug overdose deaths were highest among Black seniors. The death rate from drugs among Black men ages 65 to 74 was more than four times higher than Hispanic or white men in that age group, according to the data. Black women ages 65 to 74 died more often from drug overdoses than white and Hispanic women. White women older than 75 had a higher death rate from drugs than Black and Hispanic women.

Alcohol deaths were highest among American Indian seniors followed by Hispanics, white Americans, Black Americans and Asian Americans, according to the data.

Elon Musk may be luring Apple into a fight with Republicans

Tim Cook walks in the Paddock prior to the F1 Grand Prix of USA at Circuit of The Americas on October 23, 2022 in Austin, Texas.

Jared C. Tilton | Getty Images

Over the past week, Twitter owner Elon Musk has been poking Apple, the big bear of Silicon Valley, which controls app distribution to every iPhone.

Musk has been taking aim at the iPhone maker over a number of topics, including its reduced spending on Twitter advertising and its 30% cut of all digital sales made through apps. He also accused Apple of threatening to pull the Twitter app from the App Store.

In one deleted tweet, Musk suggested he was “going to war.” In another, he asked if Apple hates free speech. Over the weekend, he mused he’d make his own smartphone.

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Apple has remained a sleeping bear in the face of Musk’s provocations. It has not commented, nor has CEO Tim Cook, and while its app review moderation staffers may be talking to Twitter behind the scenes over questionable content, Apple hasn’t pulled the app. In fact, Twitter got an update through app review last week.

Twitter is not that important to Apple from a business perspective. It’s just one of a vast number of apps on the App Store, and it isn’t a huge moneymaker for Apple through in-app purchases.

But on Tuesday, Florida Gov. Ron DeSantis and Ohio Senator-elect J.D. Vance, both Republicans, made remarks about Apple’s situation that show how Musk could put Apple in a tough spot.

Here’s one way it could go:

  • Musk makes a change to Twitter in order to bypass Apple’s 30% fees, such as allowing users to plug their credit cards in to the app to subscribe to Twitter Blue or other new features.
  • Apple pulls the app because of these violations.
  • Musk frames the dispute with Apple as an issue over free speech and content moderation, and Republican politicians agree.
  • Apple gets caught up in a nationwide debate over free speech and monopoly power focusing on its App Store.

How things could play out

On Tuesday, DeSantis said at a press conference that if Apple were to kick Twitter off, it would show that Apple has monopolistic power and that Congress should look into it. DeSantis framed it as an issue of free speech — many conservatives believe that social networks, including Twitter, generally discriminate against conservative viewpoints.

“You also hear reports Apple is threatening to remove Twitter from the App Store because Elon Musk is actually opening it up for free speech, and is restoring a lot of accounts that were unfairly and illegitimately suspended for putting out accurate information about Covid,” DeSantis said.

“If Apple responds to that by nuking them from the app store, I think that would be a huge, huge mistake, and it would be a really raw exercise of monopolistic power,” he continued.

Vance framed the situation similarly in a tweet, saying that if Apple pulled Twitter, “This would be the most raw exercise of monopoly power in a century, and no civilized country should allow it.”

In fact, Apple’s app review department is unlikely to pull Twitter over content. While Apple regularly bans apps over questionable content, they are rarely big brand names such as Twitter — they’re usually smaller, lesser-known apps. Apple’s rules for apps with significant user-generated content, such as Twitter, focus less on specific kinds of infringing content and more on whether the app has a content filtering system or content moderation procedures. Twitter has both, although Musk’s recent cuts to Twitter’s staff could hurt its ability to flag problem posts.

But Apple would be much more likely to pull the Twitter app if Twitter tries to cut Apple out of its platform fees.

It’s happened before. In 2020, Fortnite added a system inside its iPhone app that allowed users to buy in-game coins directly from Epic Games, cutting out the 30% of sales that Apple typically takes. Apple removed Fortnite from the App Store the same day. The episode kicked off a legal battle, which Apple won on most counts but is currently in appeals.

Google takes a similar cut for Android apps sold through its Play Store but also allows other Android app stores to exist and allows people to “sideload” apps directly onto their phones, while Apple has an exclusive lock on all iPhone app distribution.

Musk has good business reasons to pick this fight.

In particular, Musk wants Twitter to make much more money from direct subscriptions and not advertising. But Apple’s 30% cut of purchases made inside apps is a major hurdle for a company that is slashing costs and has a significant debt load.

So Musk could pull an Epic Games move and enable direct billing, spurring Apple to take action, while at the same time framing the debate around free speech. If that happened, as DeSantis suggested, perhaps Congress would start asking questions. Apple would become a football in political debates. Executives could be forced to testify or provide written responses.

At the very least, you’d have lawmakers such as Vance using the words “monopoly” and “Apple” in the same sentence. That’s a risk to Apple’s brand. Debate over these topics could reenergize pending regulation such as the Open Markets Act which threatens its control over the App Store and its significant profits.

The last time Apple pulled an app that was popular with conservatives for lack of content moderation was Parler in January 2021. It was restored in April.

In the interim, Apple faced official inquiries from Republican Sens. Ken Buck and Mike Lee about why Parler was removed from the App Store. Cook appeared on Fox News to defend the company’s decision.

Twitter is a significantly more important and well-known social network than Parler was and would grab more attention.

It’s probably most valuable for Apple if Twitter remains on the platform. The controversy-averse iPhone maker would probably like this whole Elon Musk narrative to go away.

Indeed, it could play out this way: Apple remains silent, working with Twitter behind the scenes on its app, and Musk tweets about the 30% cut when it irks him. Nothing really changes.

But Musk is unpredictable, and if he does really want to “go to war” over 30% fees, Apple could be forced into a tough spot.

Apple and Twitter did not immediately respond to requests for comment.