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Things may be about to get ugly

Xiaomi debuts, the Brexit chief resigns, and Mike Pompeo reminds North Korea to give up its nuclear weapons. Here are some of the things people in markets are talking about.

Xiaomi Debuts

When billionaire Chairman Lei Jun strikes the gong on Monday in Hong Kong, he will usher onto public markets a company twice as expensive as Apple Inc. that is pitching itself as a high-growth internet play on par with the likes of Facebook Inc. At about $50 billion, Xiaomi will become the world’s third-largest publicly-traded maker of mobile devices, a standard-bearer for Chinese corporations seeking to become global players and leaders in technology. Institutional investors saw bids on the gray market 11 percent below the initial public offering price, after Xiaomi’s IPO came in at the very bottom of a marketed range. If that level holds during actual trade, it may have a chilling effect on a swathe of tech corporations keen on raising capital this year to fuel their ambitions, from Meituan Dianping to Tencent Music. Longer-term however, Xiaomi’s expanding global footprint may help it grow into its valuation.

Brexit Chief Quits

David Davis, the U.K.’s Brexit Secretary, quit on Sunday. Prime Minister Theresa May has sought to bind internal critics into publicly supporting her Brexit policy, sending ministers out to make the case for it in newspapers and on the airwaves, as opponents on both sides began to point out shortfalls with her proposals. Among the biggest Brexit-supporting names in the Cabinet, Trade Secretary Liam Fox put his name to a newspaper article backing the plan, and Environment Secretary Michael Gove defended the agreement in a television interview. Foreign Secretary Boris Johnson meanwhile let it be known that he planned to stay in the Cabinet because he felt this would be the best platform from which to fight moves to soften the government’s position further. May will tell doubters in her Conservative Party Monday that their criticism of her Brexit strategy is “wrong,” and they should get behind her plan.

Week Ahead

President Donald Trump attends the NATO summit in Brussels, then visits the U.K. to meet Queen Elizabeth II and Prime Minister Theresa May; Allen & Co. holds its annual mogul retreat in Sun Valley; Turkey President Recep Tayyip Erdogan is sworn in; and U.S. inflation probably accelerated in June, reinforcing the Federal Reserve’s outlook for gradual interest rate increases, economists project. JPMorgan Chase, Wells Fargo & Co. and Citigroup start the U.S. bank-earnings season. Mexican media company Grupo Televisa, soft-drink maker PepsiCo, WD-40, Ocado Group, Japanese shopping center operator Izumi Co., and Indian software firm Infosys are also set to release earnings.

North Korean Reminder

U.S. Secretary of State Mike Pompeo went to Pyongyang to get Kim Jong Un to give up his nuclear weapons. He left with a harsh reminder that the North Korean leader expects something in return. While President Donald Trump’s point man for nuclear talks summed up his 27 hours in the North Korean capital as “productive,” the regime called the visit “regretful.” No sooner had Pompeo left when Kim’s media published a statement saying the U.S.’s “unilateral and gangster-like demand for denuclearization” risked upending ties less than a month after Trump and Kim shook hands in Singapore.

Trade Watch

The first shot of the U.S.-China trade war went off without much of a reaction from investors. The calm may be short lived. For months, financial markets have been bracing for President Donald Trump to follow through with threats of tariffs against China. So it came as little surprise when the U.S. implemented duties on $34 billion in Chinese imports on Friday, as planned, and Beijing retaliated proportionately. The Trump administration is currently reviewing another round of tariffs on $16 billion in Chinese goods. If the U.S. stops at duties on $50 billion in imports, and China does likewise, the hit to both countries’ economies will be modest, Bloomberg Economics projects. However, Trump said last week that he may expand tariffs to more than $500 billion in Chinese goods, to basically cover all imports from the Asian nation into the U.S.

What we’ve been reading

This is what caught our eye over the last 24 hours.

And finally, here’s what David’s interested in this morning

One of Monday’s big market events will be Xiaomi’s first day of trading. Expect much of the conversation to be about what exactly we’re buying here — especially since shares might struggle. Xiaomi looks in the mirror and sees an internet company. The market sees something more akin to a hardware company. A glance at the profit and loss statement immediately tells you it’s the latter. The discussion is whether it can (or should) evolve from a business that currently derives less than 10 percent of sales from internet services, by turning that slice into 70 percent to 80 percent and commanding the higher multiples those kinds of companies enjoy.

I think our analysts at Bloomberg Intelligence described this strange hybrid the best: Xiaomi is a low-margin seller of hardware that monetizes customers through internet services once they’re in its ecosystem. In other words, it’s hard to see how Xiaomi weans itself off hardware for the foreseeable future. Regardless of which side of the debate you’re on, it’s great to see it finally listing. Don’t forget, this is a company that was founded only in 2010, launched its first phone after a year and dislodged Apple and Samsung from the top of the Chinese market not long after. Hope you guys can tune in to our coverage today. We’ll be joined by some of the company’s early investors and analysts.

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