Daily Brief: Good News For China’s Economic Growth Is Good News For The World’s Stock Markets

Daily Brief: Good News For China’s Economic Growth Is Good News For The World’s Stock Markets

almost 3 years ago3 mins

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New data out on Friday showed the Chinese economy grew at its fastest pace on record last quarter, proving that this apparently unbeatable pandemic is anything but.

What does this mean?

The world’s second-biggest economy grew 18% compared to the same time last year. And sure, most of the Chinese economy was shut down in the first quarter of 2020 because of the coronavirus outbreak. And sure, the pandemic’s lingering effects were noticeable in the numbers, with China’s manufacturing industry – which makes up 38% of its economy – growing slower than expected. But that drop-off was more than offset by the 34% rise in retail sales, which has put China on course to smash its annual growth target of 6%. Fatality!

China’s quarterly economic performance

Why should I care?

For markets: The big just got bigger.

The International Monetary Fund (IMF) – a major international economic organization – actually reckons China’s economic growth will go back to pre-pandemic levels this year, hitting as much as 8.4%. That tallies with the consensus that China and the US will drive the global rebound in 2021, with the latter’s economy projected to grow by a tidy 6.4%. That should come as a relief for investors, who are hoping strong economic growth will make sure this stock market rally just keeps rallying.

IMF global growth

The bigger picture: Can’t we all just get along?

While the two biggest economies are expected to lift global growth, their tech war – recently escalated by the US’s decision to blacklist seven Chinese supercomputing firms – could do the exact opposite. In a research report out on Friday, the IMF said the US and China’s unwillingness to share tech could cut as much as 5% off the economic output of various countries around the world. That’d be more than 10 times the damage their existing trade tariffs are estimated to have done…

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Morgan Stanley Reported Better-Than-Expected Earnings

Morgan Stanley image

Morgan Stanley might’ve been late to the party, but the investment bank finally joined three of its rivals in celebrating record-setting earnings late last week.

What does this mean?

Morgan Stanley’s earnings blew past expectations last quarter, with revenue from the firm’s investment banking business more than doubling compared to the same time last year. That segment raked in massive fees by helping special-purpose acquisition companies list on the stock market – just like Wells Fargo, Goldman Sachs, and JPMorgan, all of which reported blowout earnings of their own earlier in the week. So despite losing nearly $1 billion from the Archegos Capital Management debacle, Morgan Stanley still pocketed a record-breaking profit of over $4 billion.

Flesh wound

Why should I care?

Zooming in: Morgan Stanley’s strategy is paying off.

Morgan Stanley spent $13 billion buying online broker E*TRADE last year, and the move looks like a shrewd one: E*TRADE – which now boasts over 7 million clients, 7% more than at the end of 2020 – benefited heavily from the burst of new retail traders last quarter. Eaton Vance was money well spent too: Morgan Stanley bought the investment management firm for $7 billion in 2020, pushing up the pot of money it looks after to $1.4 trillion dollars – from “just” $600 billion this time last year.

Trading revenue

The bigger picture: Banks’ bread and butter looks a little stale.

The interest banks make on loans is a more stable source of revenue than, say, investment banking, making it essential to their survival. And while Morgan Stanley lent out 15% more cash last quarter, it might be worried that the four biggest US banks all reported a drop-off. Households, it seems, not only don’t need new loans: they have enough loose change to pay off existing ones. And even though businesses are keen to borrow, there’s a much cheaper way for them to do it: they can sell bonds – which currently boast ultra-low yields – to fund their future growth.

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