China Rate Cut and First Retailer Earnings

Investors looking for central banks to start cutting interest rates got their wish overnight as China cut its 5-year loan rate by 0.25% to 3.95%, and several banks stepped in to shore up currency trading. While this news helped Hong Kong and Shanghai to bounce 0.4%-0.6%, the broader impact has been decidedly bearish.

It appears that investors have been viewing China’s recent moves as a sign that its economy remains in rough shape and that broader global economy may be falling toward a recession as well. Copper and US Crude Oil are both down 0.2% this morning. Tokyo and Frankfurt are both down about 0.3% today, while London is up only 0.1%. Treasury yields are down slightly dragging in the US Dollar and boosting Gold by 0.6% and major paper currencies like the Euro and Loonie by 0.2%.

US index futures are down 0.3% to 0.4%, adding to Friday’s US index losses of 0.3% to 0.8%, with the NASDAQ the weakest on both days.

The focus in North America today is on earnings with the first two major US retailers reporting. Home Depot beat the street on sales and earnings ($2.82 vs street $2.77) but its sales guidance came in light (1.0% vs street 1.6%) sending its shares down 2.3% in premarket trading. Walmart beat expectations on EPS ($1.80 vs street $1.64, up 3.9% premarket) and sales, and also announced plans to purchase Vizio, a producer of consumer electronics, for $2.3B).  

Although the number of earnings reports is smaller this week, there are still a number of heavyweight companies reporting results. Headliners include: Nvidia* and Suncor Energy tomorrow, followed by Booking Holdings*, Teck Resources, and Loblaws on Thursday.

There also is a big merger in the credit card sector today with Capital One agreeing to purchase Discover Financial for $35.3B in an all-stock deal. As is common in merger announcements, shares of Discover who is being bought, are up 14.4% premarket while shares of Capital One, the purchaser, are down 3.8% as it takes on deal and integration risks.

It’s a quieter week for economic news. Canada consumer prices were better than expected, showing easing inflation pressures (2.9% vs street 3.3%).   tomorrow Fed minutes are out, followed by Flash PMI reports and Canada retail sales on Thursday, plus a few housing numbers along the way.

*Shares of Nvidia and Booking Holdings are held in some portfolios managed by SIA Wealth Management.

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