Awash With Third-Quarter Data

Awash With Third-Quarter Data

over 4 years ago3 mins

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The end of the third quarter beckons, and investors everywhere are taking stock of the last few months and making predictions about what’s to come.

🕰️ Recap

  • The US reported 2.1% second-quarter economic growth in July, though it was later revised down to just 2%
  • This month, both the European Central Bank and US Federal Reserve lowered their respective interest rates, hoping to jump-start economic growth
  • Eurozone survey data showed shrinking economic activity on Monday, while the US surprisingly rebounded
  • But on Tuesday, US consumer survey results showed people in the States aren’t as confident in the economy as last month

🔗 Connecting The Dots

At the end of a quarter, investors typically rebalance their portfolios – which involves looking back at the last three months to see what clues they might offer for the next three. Preliminary economic growth data from the world’s largest economies won’t be available for about a month, and the same’s true for company earnings which give investors a closer look at how individual sectors are evolving. Instead, investors will make do with soft data: the results of company and consumer surveys which could hint at economic events to come.

Looking back, investors might categorize this past summer as slow yet anything but restful. The US notched up a dramatic slowdown in economic growth from the quarter before, the country’s central bank cut interest rates for the first time in over a decade, and while most companies beat investors’ second-quarter earnings expectations, aggregate expectations for this coming quarter fell.

The eurozone was even worse: data showed slowing (if not shrinking) economic growth each month, and Germany, the region’s biggest economy, well on its way to recession – meaning the rest of the bloc probably isn’t far behind.

🥡 Takeaways

The US seems fine except for a few warning signs.August’s survey data dipped in the US, but September’s activity in the manufacturing and services sectors picked back up. That should set the country in good stead to meet economists’ third-quarter forecasts for 2% growth versus the same time last year – the same growth rate as in the second quarter. But according to September’s consumer survey, confidence is ebbing fast. That might lead them to spend less – and with the consumer spending-driven services industry comprising 65% of the US economy, there could be a greater slowdown to come.

Investors avoid European stocks, but not just because of the data.The European Union’s trade war with Uncle Sam looks ready to kick into high gear shortly. According to a report from Barclays last week, the impact of fresh tariffs on an already-weak eurozone might encourage investors to ditch stocks for bonds, including those considered more risky – like emerging markets’. And while last week’s surveys might give investors pause for thought, Europe’s weak soft data has in the past been followed by strong hard data shortly after. Some investors may therefore start to doubt these surveys’ predictive power.

🎯 Also On Our Radar

Nintendo launched Mario Kart for iPhone on Wednesday, but its stock had one of its worst-ever days. Initial Japanese sales figures for the company’s new Switch Lite console were below half what analysts had expected. And with Japan already struggling to keep its exports competitive on the global stage, poor domestic sales don’t bode well for its international success – and future profits.

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