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Robert St Clair of Fullerton Fund Management says that the PBOC is using “all the tools it has at its disposal” and the monetary stimulus could make a difference as it is targeting the heart of the problem facing China.
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Tag: Economic stimulus
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UBS’ Thomas Fang and The Smart Investor’s David Kuo debate China’s stimulus promises
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David Kuo from The Smart Investor and Thomas Fang, Head of China global markets at UBS discuss the Chinese Finance Minister’s press conference on the highly anticipated fiscal stimulus and its impact on the country’s struggling housing market.
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Allianz Global Investors: Recapitalization of Chinese banks critical to sustaining market rally
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Jenny Zeng from Allianz Global Investors discusses whether the PBOC’s stimulus package is enough to sustain the current Chinese market rally, adding that she is watching if the Chinese government will stay ahead of market expectations.
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China is making the right moves to adjust its economy, doesn’t need bazooka-style stimulus anymore: Jim Walker
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Jim Walker of Aletheia Capital discusses the recent policy package from the Chinese central bank and regulators and why he thinks there will not be a bazooka-style stimulus like there was in the past.
03:14
Tue, Sep 24 202411:28 PM EDT
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China faces serious structural issues, but its stocks offer some trading opportunities: Ron Temple
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Ron Temple from Lazard explains why he sees China market as a trading opportunity rather than an investment opportunity.
04:00
9 minutes ago
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Zombie firms are filing for bankruptcy as the Fed commits to higher rates
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In the U.S., 516 publicly listed firms have filed for bankruptcy from January through September 2023. Many of these firms have survived for several years with surging debt and lagging sales.
“The share of zombie firms has been increasing over time,” said Bruno Albuquerque, an economist at the International Monetary Fund. “This has detrimental effects on healthy firms who compete in the same sector.”Zombie firms are unprofitable businesses that stay afloat by taking on new debt. Banks lend to these weak firms in hopes that they can turn their trend of sinking sales around.
“A really healthy, well-capitalized banking system and financial sector is one of the most important factors in ensuring that unhealthy firms are wound down in a timely way rather than being propped up,” said Kathryn Judge, a professor of law at Columbia University.
Economists say that zombie firms may become more prevalent when banks or governments bail out unviable firms. But the Federal Reserve says the share of firms that are zombies fell after the Covid-19 emergency stimulus measures were implemented. The Fed says banks are refusing to keep weak firms in business with favorable extensions of credit.
The Fed economists point to healthy balance sheets at U.S. firms, despite the increasing weight of interest rate hikes. The effective federal funds rate was 5.33% in October 2023, up from 0.08% in October 2021.
“The biggest implication of the rapid rise in interest rates that we’ve seen the last five or six quarters, actually, is that it reestablished cash,” said Lotfi Karoui, chief credit strategist at Goldman Sachs. “That actually puts some constraints on risk assets.”
The Fed says it thinks interest rates will remain higher for longer. “Given the fast pace of tightening, there may still be meaningful tightening in the pipeline,” Fed Chair Jerome Powell said at an Economic Club of New York speech Oct. 19.
Watch the video above to learn more about the Fed’s battle with unviable zombie firms in the U.S.
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How the Fed fights zombie firms
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Some firms sustain their businesses by taking on more debt that they can repay. Economists call them zombie companies. When compared to their peers, zombies are smaller in size and deliver lower returns to investors. These companies distort markets, keeping resources from their fundamentally sound competitors. Banks and governments keep zombie firms alive with bailout loans. As the Federal Reserve resets the economy with higher interest rates, many zombie firms are filing for bankruptcy.
10:01
Tue, Oct 31 20236:00 AM EDT
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Lack of confidence, not stimulus is the real problem facing the Chinese economy: Analyst
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Shaun Rein of China Market Research Group discusses his outlook on the Chinese economy and shares why he thinks it is unlikely to see the government implement a major stimulus program.
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Why Americans are saving less in 2023
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Americans started the 2020s with a personal savings boom. The trillions in excess personal savings built up in the pandemic are beginning to vanish amid high inflation, according to Federal Reserve economists. The annual savings rate fell to a 15-year low in 2022. It started a recovery in 2023, but remains well below long-term trends. Despite this slowdown in saving, consumer spending has remained robust, keeping the U.S. from recession.
11:56
Thu, Apr 27 20239:54 AM EDT
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China’s Xi visiting Saudi Arabia amid bid to boost economy
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BEIJING — Chinese leader Xi Jinping is attending a pair of regional summits in Saudi Arabia this week amid efforts to kick-start economic growth weighed down by strict anti-COVID-19 measures.
The Foreign Ministry said Wednesday that Xi will attend the inaugural China-Arab States Summit and a meeting with leaders of the six nations that make up the Gulf Cooperation Council in the Saudi capital of Riyadh. His state visit to Saudi Arabia will end on Saturday.
China is the world’s second largest economy and a major source of outward investment. To fuel massive demand, it imports half its oil, of which half of those imports come from Saudi Arabia, amounting to tens of billions of dollars annually.
China’s economic growth had been on a steady decline for years and was dealt a major blow by rolling lockdowns imposed across the country as a response to the COVID-19 pandemic.
Chinese economic growth rebounded to 3.9% over a year earlier in the three months ending in September, up from the first half of the year’s 2.2%, but still well short of the government target.
China’s COVID-19 infection numbers are lower than those of the United States and other major countries. But the ruling party is sticking to “zero-COVID,” which calls for isolating every case, while other governments are relaxing travel and other controls and trying to live with the virus.
China’s ruling Communist Party shares many of the authoritarian tendencies of Saudi Arabia and other Gulf states, shielding Beijing from criticism over its harsh policies toward Uyghurs and other Muslim minorities. More than a million have been sent to detention centers where they report being forced to denounce Islam and swear fealty to Xi and the party.
Beijing denies the charges, saying they have been providing job training and ridding Muslims of extremist, separatist and terroristic tendencies.
The trip to Saudi Arabia marks a further move by Xi to restore his global profile after spending most of the pandemic inside China. Xi was granted a third five-year term in October, but street protests against “zero-COVID” policies last month saw the most significant public challenge to his rule and may have prompted a relaxation of some measures.
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Wall Street heads for first weekly win streak since summer
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NEW YORK — Wall Street is rallying Friday, led by Apple, Exxon Mobil and other companies that made even bigger profits during the summer than expected.
The S&P 500 was 1.2% higher in early trading and on pace to close out its first back-to-back weekly gains since August. The Dow Jones Industrial Average was up 533 points, or 1.7%, to 32,576, as of 10:30 a.m. Eastern time, and the Nasdaq composite was 1.1% higher.
Stocks have revived recently in part on hopes that the big hikes to interest rates shaking the market may be set to dial down later this year. Some investors are even talking again about a “pivot” by the Federal Reserve away from a focus solely on beating down inflation through rate hikes, even if many analysts say such hopes may be overstretched. More recently, many big U.S. companies have been reporting stronger earnings than expected, though the bag remains decidedly mixed.
Apple rose 5% and was the strongest force lifting the S&P 500 in its first trading after reporting fatter revenue and profit than expected for the latest quarter. Oil producers were also strong after delivering record earnings on the back of rising crude prices. Exxon Mobil climbed 2.8%, and Chevron rose 2%.
They helped to offset a 10.8% drop for Amazon, which offered a weaker-than-expected forecast for upcoming revenue. It was the latest in a lengthening list of discouraging trends for some of the Big Tech companies that have dominated Wall Street for years with their seemingly unstoppable growth.
Earlier in the week, Meta Platforms lost nearly a quarter of its value after reporting a second straight quarter of revenue decline amid falling advertising sales and stiff competition from TikTok. Microsoft and Google’s parent company also reported weaker trends than Wall Street expected.
Rising interest rates have hit Big Tech stock prices harder than the rest of the market, and the pressure increased Friday as yields climbed.
Data released in the morning showed the raises that U.S. workers got in wages and other compensation during the summer was in line with economists’ expectations. That should keep the Fed on track to keep hiking rates sharply in hopes of weakening the job market enough to undercut the nation’s high inflation.
The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 4.38% from 4.28% late Thursady.
The 10-year yield, which helps set rates for mortgages and many other loans, climbed to 3.98% from 3.93% and was briefly back above 4%.
Trading in Twitter’s stock has ended, after Elon Musk has taken control of the company following a lengthy legal battle.
In Europe, stock indexes were mixed in relatively muted trading.
Shares fell 0.9% in Tokyo even as the government approved a massive stimulus spending package to help the world’s No. 3 economy cope with inflation. As expected, the Bank of Japan wrapped up a policy meeting by keeping its ultra-lax monetary policy unchanged even as it forecast higher inflation.
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Associated Press writers Elaine Kurtenbach, Matt Ott and Mari Yamaguchi contributed.
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Asian shares mostly lower as Japan preps massive stimulus
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Shares were mostly lower in Asia on Friday after a mixed session on Wall Street, where tech sector losses offset gains in other parts of the market.
Tokyo’s benchmark slipped as the government was preparing about $490 billion in stimulus spending to help the world’s No. 3 economy cope with inflation. As expected, the Bank of Japan wrapped up a policy meeting by keeping its ultra-lax monetary policy unchanged even as it forecast higher inflation.
The Nikkei 225 index lost 0.5% to 27,210.03 while the Hang Seng in Hong Kong sank 2.3% to 15,069.69. The Shanghai Composite index shed 0.8% to 2,958.25.
The Kospi in Seoul declined 0.4% to 2,278.64. Australia’s S&P/ASX 200 dropped 0.8% to 6,788.00.
The economic stimulus package due for approval Friday includes government funding of about 29 trillion yen ($200 billion) in subsidies and other measures to help soften the burden of costs from rising utility rates and food prices. It is also designed to help shore up support for Prime Minister Fumio Kishida, whose popularity has taken a beating due to a scandal over ties between the ruling Liberal Democratic Party and the South Korea-based Unification church.
Thursday on Wall Street, the S&P 500 fell 0.6%, with about 44% of stocks within the benchmark index losing ground. It closed at 3,807.30.
The tech-heavy Nasdaq fell 1.6% to 10,792.67, while the Dow Jones Industrial Average rose 0.6% to 32,033.28.
Smaller company stocks held up better than the broader market. The Russell 2000 index added 0.1% to 1,806.32.
Facebook’s parent company, Meta Platforms, plummeted 24.6% for the biggest drop in the S&P 500 after reporting a second straight quarter of revenue decline amid falling advertising sales and stiff competition from TikTok. It joined other tech and communications stocks, such as Google’s parent company, Alphabet, and Microsoft, in reporting weak results and worrisome forecasts over advertising demand. Alphabet fell 2.9% and Microsoft slid 2%.
Amazon slid 19% in after-hours trading after the retail giant issued an estimate for sales in the last quarter of the year came in well below analysts’ forecasts. The stock fell 4.1% in regular trading before the release of its latest quarterly results.
Construction equipment maker Caterpillar jumped 7.7% after it handily beat analysts’ third-quarter profit forecasts. The big gain helped boost the 30-company Dow.
Another pullback in long-term Treasury yields helped support stocks in companies that weren’t reporting quarterly results. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.91% from 4.01% late Wednesday. The two-year yield fell to 4.30% from 4.42%.
Excluding the Nasdaq, the major indexes are on pace for weekly gains. And the S&P 500 remains solidly on track to end October in the green.
Markets got some encouraging economic news Thursday as the government reported the U.S. economy returned to growth last quarter, expanding 2.6%. That marks a turnaround after the economy contracted during the first half of the year.
The economy has been under pressure from stubbornly hot inflation and the Federal Reserve’s efforts to raise interest rates in order to cool prices. The central bank is trying to slow economic growth through rate increases, but the strategy risks going too far and brining on a recession.
The rising interest rates have made borrowing more difficult, particularly with mortgage rates. Average long-term U.S. mortgage rates topped 7% for the first time in more than two decades this week.
Central banks around the world also have been raising interest rates in an effort to tame inflation. The European Central Bank piled on another outsized interest rate hike on Thursday. Markets in Europe were mixed.
Wall Street has more earnings to review Friday, including Exxon Mobil, Chevron and Charter Communications.
Meanwhile, S&P Dow Jones Indices said Thursday that insurer Arch Capital Group will replace Twitter in the S&P 500 index before the opening of trading on Tuesday. The move comes ahead of Elon Musk’s acquisition of Twitter in a transaction expected to close Friday.
In other trading, the dollar fell to 146.20 yen from 136.31 late Thursday. The euro
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AP Business Writers Damian J. Troise and Alex Veiga contributed.
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