The market will likely find China's second quarter GDP growth
numbers reassuring as many read last week's second interest rate
cut in less than a month as a sign of a much weaker growth trend.
But the inline growth number notwithstanding, it is nevertheless
further confirmation that the global economy remains in a
On the home front, we got more details this morning about
) trading loss, prompting the bank to restate its prior-quarter
results even as its second quarter earnings and revenue numbers
came in better than expected. While J.P. Morgan's trading woes are
clouding at the true earnings power of its banking franchise, we
have no such issue with
) results this morning, which are almost boring by comparison
(perhaps we need more boring and less exciting banks). Wells beat
EPS expectations by a penny on in-line revenue.
In other economic news, the June Producer Price Index was a tad hot
on the 'headline,' but the 'core' number broadly in-line with
expectations. The University of Michigan consumer sentiment survey
coming out a little later is expected to show a modest gain from
its last reading.
With respect to China and the global growth worries, the issue came
full circle for stock market investors this week when engine maker
) preannounced and cited not only China, but also weakness in
Brazil, India and the U.S. Cummins is the poster child for the
export-centric industrial corporate players, but we have been
hearing about weak economic growth affecting the earnings outlook
from a host of companies in different industries ahead of this
Procter & Gamble
), to name just a few. This has raised concerns that we may see a
material deterioration in the corporate earnings picture as the
second quarter reporting season unfolds.
China's in-line second quarter GDP growth rate of 7.6% was the
lowest since the beginning of 2009 and the below the first
quarter's 8.1% growth pace. Many expect that the second quarter
growth rate could be the low point of this year's quarterly GDP
growth readings as already implemented stimulus measures start
taking effect. The proportion of growth coming from domestic
consumption appears to be steadily increasing, though it will
likely be a while before domestic consumption can offset weakness
in exports and investments, which have thus far been the biggest
drivers of growth.
Europe's problems have contributed to China's slowdown though the
trade route, but the government's policy of reining in speculative
excesses in the real estate sector has also been significant in
bringing down economic growth. Some estimates put the size of the
real estate sector as high as 12% of GDP.
Tighter government regulations in the sector have showed up in
reduced new construction and in demand for cement, furniture and
appliances. While government officials continue to state their
determination to maintain strict controls on the sector, many
observers are starting to see evidence to the contrary. This could
mean that the real estate sector will stop being a drag on the
economy going forward.
CUMMINS INC (CMI): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
To read this article on Zacks.com click here.
Bottom line: Chinese growth numbers turned out to be less worrisome
than many were fearing. And J.P. Morgan's results, particularly its
restatement of last quarter's results, raise serious questions
about internal controls at the country's supposedly best-run bank,
which also happens to be the largest by assets.
(This article was originally published as
Ahead of Wall Street - July 13, 2012