Asian stock exchanges reacted negatively to China’s new economic data. In the West, positive quarterly earnings ended most markets in green.
During the week between July 17th and 21st, Asian markets slowed down following bleak economic data from China. American and European indexes, on the other hand, rejoiced rather positive earnings from banks and major corporations.
But first, let’s start with some numbers:
- The S&P 500 peaked on Wednesday, ending the week at +0.80%. Similarly, the Dow Jones rallied ending at +2.27%;
- The Nasdaq Composite was the only Western market to end in red at -0.59%;
- In Europe, Frankfurt ended at +1.02%, London at +3.08%, and Milan at +0.59%;
- Asian markets, on the other hand, all plummeted with Tokyo closing at -0.13%, Hong Kong at -1.29%, and, most severely, Shanghai at -1.59%.
China’s stagnation
Asian markets are pessimistic because of China’s confirmed stagnation. GDP in the world’s second-largest economy missed expectations for the second quarter, growing 6.3% instead of 7.3%. Further, youth unemployment surged to 21% and exports dropped 8.3% year-on-year.
China’s largest real estate developer, Evergrande, also announced $81 billion in debt incurred between 2021 and 2022. Evergrande has been a thorn in China’s spine for over two years, with the government attempting a "controlled bankruptcy".
But Evergrande declared that its remaining assets are not turning into liquidity as fast as they hoped. Debt keeps mounting and a default might happen at any time, possibly plunging the entire Chinese economy into recession.
China’s declining exports signal a historic shift in the country’s economic strategy. Beijing is focusing on internal demand as the United States isolates China economically and technologically.
Rising tensions between the West and China result in worse economic conditions for both sides. The US only hopes China will give in first.
Quarterly earnings
Important Q2 earnings this week shed light on the health of the American economy. In particular, some banks including JPMorgan, Wells Fargo, and Bank of America showed higher earnings than expected.
Notably, Goldman Sachs reported a 58% revenue loss year-on-year, a worse performance than expected. Other banks like Morgan Stanley and Charles Schwab declared a loss in operating profits this quarter.
Tesla and Netflix also released their quarterly data, both showing higher revenues than expected but with a few tweaks.
Tesla’s CEO Elon Musk failed to provide a release date for the long-awaited Cybertruck, and Wednesday data revealed that, despite higher revenues, the company’s profits remained almost the same.
Netflix, on the other hand, also declared lower revenues/subscriber data, revealing that the higher income was due to lower prices in some areas. Their ad-based service and password crackdown strategy are not working.
Tesla’s stock dropped -6.91%, while Netflix fell over 9% from its Wednesday highs.
