2023-10-25 12:25:00 ET
Summary
- China issues 1 trillion yuan bond to support its economy.
- Texas Instruments falls after Q3 results; Boeing maintains its year-end FCF targets.
- Stocks returning cash should outperform capex spenders - Goldman Sachs.
Listen below or on the go on Apple Podcasts and Spotify
China's government announces $137 billion in stimulus . (0:15) Boeing cuts 737 delivery forecast. (1:50) Google to run internet cables to island nations . (4:11)
This is an abridged transcript of the podcast.
Our top story so far
China rolled out fresh stimulus to prop up its economy. Its top parliament body cleared a 1 trillion yuan—or $136.66 billion—sovereign bond issue, although concerns remained over its wider impact on growth.
The move, which will push China's 2023 budget deficit ratio to ~3.8% from 3%, is expected to support the rebuilding of disaster-hit areas and improve disaster relief infrastructure.
A total of $500 billion yuan will be used this year, and the remaining will be carried over to 2024.
Zhu Min, a former deputy governor of the People's Bank of China, told Bloomberg, "The package is not huge, but the impact will be big."
He calls the stimulus "sectoral, earmarked, clear structure-oriented" and aimed at benefiting industries where Beijing wants to replace old economic drivers like the property sector.
Beijing also passed a bill to allow local governments to frontload part of their 2024 bond quotas, which will help maintain steady investment and expand domestic demand.
UBS economist Paul Donovan says, "China was expected to meet this year's growth target of around 5%. The rush to stimulate at this point suggests concern about growth momentum in 2024 or a worry that living standard reality is not as good as the reported GDP figures imply."
The move helped Chinese equities today but had little impact on copper prices, despite the prospect of greater demand. Copper futures (HG1:COM) are down -0.5%. Earlier this week, they hit their lowest level since November after LME-tracked inventories expanded for 14 weeks. That’s the longest such streak since 2010.
Among the morning's big earnings reports
Boeing ( BA ) maintained its targets of $4.5 billion to $6.5 billion in operating cash flow and $3 billion to $5 billion in free cash flow.
The jet maker cut its year-end delivery target for the best-selling 737 to a range of 375 to 400 planes, down from 400 to 450. The narrowbody has been dogged by manufacturing defects this year. Boeing kept its delivery goal of 70 to 80 of its 787 Dreamliner planes.
Texas Instruments ( TXN ) fell after posting third-quarter results and guidance that missed expectations by a wide margin, leaving many on Wall Street concerned about the future.
Citi analyst Christopher Danely noted that while the third-quarter results were "roughly in line," revenue, earnings per share, and margins are likely to remain under pressure for some time.
And T-Mobile ( TMUS ) boosted its full-year guidance on the back of strong subscriber additions. The telecom now expects to add between 5.7 million and 5.9 million postpaid subscribers, up from a prior view of 5.6 million to 5.9 million.
In today’s trading
Growth stocks are struggling. The Nasdaq ( COMP.IND ) is down nearly -1.5% as Alphabet and Texas Instruments weigh. The S&P (SP500) is off about -1% and the Dow ( DJI ) is down less than -0.5%, helped by Boeing and Microsoft.
DataTrek noted today that "as much as the Nasdaq has trounced the S&P so far this year (+25.5% vs. +10.6% YTD), it’s actually playing some catch-up, having lagged by almost one standard deviation over the last 3 years."
"The Nasdaq has underperformed the S&P by 920 basis points over the last 3 years, when the Comp typically outperforms by a much larger margin."
Yields are creeping back up after a strong rise in September new home sales. The 10-year (US10Y) is back above 4.9%.
New home sales climbed 12.3% M/M in September to a rate of 759,000, well above the 680,000 expected and accelerating from August's reading of 676,000.
In other news of note
Google will run undersea cables to provide internet access to at least eight distant Pacific Ocean countries under a joint U.S.-Australian agreement. That’s according to Reuters.
The agreement will extend an existing commercial project by the Alphabet unit in the region to Micronesia, Kiribati, the Marshall Islands, Papua New Guinea, the Solomon Islands, Timor-Leste, Tuvalu, and Vanuatu.
Australia will contribute $50 million, while the U.S. will pitch in with another $15 million.
The remote countries of the Pacific have become an area of interest in recent years, with both China and the U.S. wooing them with infrastructure development and military collaborations.
And in the Wall Street Research Corner
Goldman Sachs says companies focusing on buybacks and dividends are the ones to watch at this point in the economic cycle.
Equity strategist David Kostin says, "Among companies with strong balance sheets, we expect investors will reward firms returning cash to shareholders and be skeptical of companies making large capex investments.”
With U.S. GDP growth forecasted to remain near trend and the labor market to remain tight in 2024, ”firms investing for growth through capex and R&D typically underperform as investors avoid companies making large capital investments with potentially low returns on those investments."
"In contrast, stocks returning cash to shareholders through buybacks and dividends typically outperform."
Among the names in Goldman’s sector-neutral Total Cash Return Basket are Ford (F), Marathon Oil (MRO), State Street (STT), Cardinal Health (CAH), and NetApp (NTAP).
For further details see:
Wall Street Lunch: China Opts For Stimulus But Growth Worries Loom