China is growing again

The S&P 500 Index and Dow Jones Industrial Average started Tuesday strong only to fade later as an unexpectedly strong retail sales report triggered another bounce higher in Treasury yields and investors once again recalibrated their inflation and interest rate expectations.  The Atlanta Federal Reserve added to the pressure on shares when it raised its forecast for third-quarter economic growth to 5.4% from 5.1%.  Concerns over how the Fed might respond to these latest signs of economic resilience overshadowed stronger-than-expected earnings reports from companies including Goldman Sachs, Bank of America, and Johnson & Johnson.  The Dow inched up 0.04%, while the S&P 500 and Nasdaq Composite shed 0.01% and 0.25%, respectively.   European equity markets also had a mixed performance and closed the day almost flat as declines in telecom and construction companies were balanced by gains in consumer products and retail shares. 

Summary for 18.10.2023 

• Most Asian shares moved in a tight range on Wednesday as growing concerns over a spillover in the Israel-Hamas war dented appetite, largely offsetting positive data that showed China’s economy grew more than expected. 
• European shares are headed for a muted start as investors assess Mideast turmoil against positive economic data from China.  Meantime, US equity futures edged lower as investors look ahead to some of the most anticipated earnings of the season, with Netflix and Tesla expected to release results after the market closes.   
• Oil rallied this morning as a deadly explosion at a Gaza hospital boosted tensions in the Middle East before President Biden’s arrival in the region.  West Texas Intermediate jumped above $88 a barrel, after closing flat Tuesday.  Traders are on alert in case the fighting spreads beyond Gaza as a wider conflict could endanger crude flows, further tightening what was an already-stretched oil market following months of OPEC+ supply cuts. 

• The Chinese economy expanded by 4.9% yoy in Q3 2023, beating market forecasts of 4.4% and offering hopes that it will meet the official annual target of around 5% this year.  During the first nine months on the year, the GDP grew 5.2%.  Perhaps more important, retail sales and industrial output for September also topped estimates, which might mean Beijing’s stimulus steps were finally bearing fruit after months of disappointment. 
• US President Joe Biden will travel to Israel today with tensions high after an explosion at a Gaza hospital killed hundreds of people.  Blaming Israel for what they called an attack, the leaders of Jordan, Egypt and the Palestinian Authority cancelled a summit with Biden that has been scheduled for today in Amman.  Anti-Israel protests broke out in several major cities around the region.  
• Retail sales in the US advanced 0.7% mom in September, following an upwardly revised 0.8% rise in August and beating forecasts of a 0.3% advance.  The data continues to point to robust consumer spending despite high prices and borrowing costs.   
• The ZEW Indicator of Economic Sentiment for Germany surged by 10.3 points from the previous month to reach –1.1% in October, significantly exceeding market expectations of –9.3.  This marks the highest reading since April, indicating that Europe’s largest economy has likely overcome its recent downturn, driven by expectations of further reductions in inflation rates and the fact that over three-quarters of respondents now anticipate stable short-term interest rates in the Eurozone. 
• Bank of America shares rose 2.3% yesterday after it reported better-than-expected profit and revenue for the last quarter.  Elsewhere, Goldman Sachs fell 1.6% on shrinking revenue and profit, though its quarterly results were still better than analysts had expected. 

• Johnson & Johnson closed 0.8% lower yesterday even after the company posted stronger-than-expected quarterly results.  The shares are down about 13% so far this year as it struggles with legal challenges related to talc products. 
• Nvidia Corp. Fell 4.7% Tuesday after the US Department of Commerce announced new restrictions on exports of artificial intelligence chips to China.