The Daily Update - Another Day Another Flag Over Growth

Another day, another flag over global growth expectations. Yesterday, as China reported a decline in industrial profits, Caterpillar posted its largest earnings shortfall in a decade citing “lower demand” from China. Being a natural barometer of industrial and construction industry confidence, markets retracted, particularly across industrials, technology and energy stocks, with Caterpillar itself down over -9% yesterday. The Dow Jones Industrial Average and S&P 500 both closed the day down -0.8%. The China slowdown theme continued with Nvidia blaming its cut in sales expectations on deteriorating demand “particularly in China”.

It is, of course, the same narrative that caused the big upset to Apple stock at the end of last year. Later this week, Apple, along with Amazon, Facebook and Microsoft will all be publishing their earnings, with markets trading cautiously lower across them all. Such statements seem almost universal with Samsung and Intel to Jaguar Land Rover and Alcoa all cited slowing growth in China as a major contributor to their latest earnings misses. However, statistics out of FactSet indicate that nearly 70% of earnings thus far in 2019 have actually beaten analyst expectations.

Then there is the perfect juxtaposition of hype and reality in the US-China trade negotiations: with the US yesterday filing fraud charges against Huawei over the Chinese’s technology giant’s alleged theft of intellectual property, contrasting both countries’ hubristic press statements over Vice Premier Liu He’s forthcoming negotiations in the US. This weakening demand within China and notably its middle class, and the increasing effects of the trade disputes were apparent with IMF’s lower global growth forecasts for 2019 and China’s 2018 growth figure of 6.6%: the lowest in nearly thirty years.

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