News Round Up – Chinese Q2 GDP, Rate Cuts, New EC Chief and Earnings Season

July 15-19, 2019 (Week 29)

Stockholm (Ekonamik) – This week was dominated by Chinese data, African and Asian interest rate cuts and quarterly earnings.

Low Chinese GDP and Doves from the Souths

Datawise, China‘s GDP figures for the second quarter of 2019 captured everyone’s attention as they were the lowest since 1992. While market analysts argue that the figures are in line with expectations and the path of China’s growth and deleveraging policies, President Trump took this occasion to claim that “tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal…”

Among central banks, the main news was the decisions of the Bank of Korea (BoK) and of the South African Reserve Bank (SARB) to lower policy rates by 25bps, to 1.5% and to 6.5%, respectively. While the SARB’s decision was expected, the BoK’s rate cut came as a surprise to analysts.

In the USA, the New York Empire State Manufacturing Index rebounded from negative territory in July. Across the Pond, the European Parliament voted to support the European Council nomination of Germany’s outgoing defence minister, Ursula von der Leyen,  as the new president of the European Commission.

Quarterly earnings

Among the companies reporting their quarterly earnings, Microsoft and Netflix stand out as cases of good and bad performance, respectively. Microsoft posted earnings of US$1.37 per share, handily beating estimates of US$1.21. While Azure, Microsoft’s cloud-computing platform, remained the software giants fasted growing segment by revenue – 64% above the revenue in the same period of 2018 – its growth was down from the 73% and 76% of the two previous quarters.

Meanwhile, Netflix, suffered not due to missing its earnings forecasts, which at 60 cents per share actually beat the 56 cents market expectation, but because it missed subscriber growth targets. Following the publication of the report, the company’s shares were down by more than 10%.

Other companies presenting quarterly earnings last week included Citigroup, Wells Fargo, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of America all beat earnings expectations. eBay, IBM and Alcoa also published their quarterly reports.

Gold Rising Again as Bond Trends Prevail

Following last week’s stabilisation, gold seems to have returned to growth exceeding the recent US$1420 ceiling below which it fluctuated, consistent with expectation that the Fed may cut rates at its meeting next week. On the other hand, ICE Brent Crude Oil lost all the gains it had made the previous week.

Global Equity markets were down across the developed world, including the S&P 500 index, Italy’s FTSE MIB, Portugal’s PSI 20, Stockholm’s OMX 30, the UK’s FTSE 100, Germany’s DAX as well as France’s CAC 40 .

Chinese and US bond markets continued to display the same trends as last week, the US Treasury yield curve continued to steepen up with the 10yr-3month term spread increasing from -7bps to -1bps. In China, the opposite took place with the yield curve flattened from both ends with the term spread decreased from 115bps to 101bps over the week.

The noisy corner

Asides from the significant developments discussed above, the news cycle was dominated by racist remarks by President Trump targetting three progressive Democratic Congresswomen from minority backgrounds. Not an edifying spectacle…

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