This article discusses the recent tech layoffs and disappointing earnings in the tech industry, despite the US adding 517K jobs and reaching the lowest unemployment rate in 50 years. The author identifies four factors contributing to the tech recession: the COVID hangover, the hardware cycle, the end of zero interest rates, and the impact of Apple's App Tracking Transparency (ATT) initiative. The author argues that these factors have created a disconnect between the tech industry and the broader economy.
### Summary
The Chinese economy has slipped into deflationary mode, with retail sales, industrial production, and exports all missing forecasts. Shrinking domestic demand and a debt-fueled housing crisis are the main causes behind this slowdown.
### Facts
- 📉 Retail sales in July grew by 2.5% year-on-year, compared to 3.1% in June.
- 🏭 Value-added industrial output expanded by 3.7% y-o-y, slowing from 4.4% growth in June.
- 📉 China's exports fell by 14.5% in July compared to the previous year, and imports dropped 12.4%.
- 💼 Overall unemployment rate rose to 5.3% in July, with youth unemployment at a record 21.3% in June.
- 📉 Consumer Price Index-based inflation dropped to (-)0.3%, indicating a deflationary situation.
- 🏢 China's debt is estimated at 282% of GDP, higher than that of the US.
### Causes of the slowdown
- The debt-fueled housing sector collapse, which contributes to 30% of China's GDP.
- Stringent zero-Covid strategy and lockdown measures that stifled the domestic economy and disrupted global supply chains.
- Geopolitical tensions and crackdowns on the tech sector, resulting in revenue losses and job cuts.
### Reaction of global markets
- The S&P 500 fell 1.2% following the grim Chinese data.
- US Treasury Secretary warns China's slowing economy is a risk factor for the US economy.
- Japanese stocks and the Indian Nifty were also impacted.
- China's central bank cut its benchmark lending rate, but investors were hoping for more significant stimulus measures.
### Global market concerns
- China's struggle to achieve the 5% growth target may impact global demand.
- China is the world's largest manufacturing economy and consumer of key commodities.
- A slowdown in China could affect global growth, with the IMF's forecast of 35% growth contribution by China seeming unlikely.
### Impact on India
- India's aim to compete with China in the global supply chain could benefit if Chinese exports decline.
- However, if China cuts back on commodity production due to slowing domestic demand, it may push commodity prices higher.
Apple's iPhone sales in China have surpassed those in the United States for the first time, contributing to Apple potentially becoming the biggest player in the smartphone market this year, despite global smartphone shipments being on track to be the worst in a decade due to economic headwinds in China and the US, according to Counterpoint Research.
China's stuttering economy poses a major threat to global commodities demand, as economic activity and credit flows deteriorate, and structural challenges and weaknesses in various sectors, including base metals, iron & steel, crude oil, coal & gas, and pork, affect the market.
China's economic weakness will pose challenges for developing economies and regions that rely on it for growth, but the U.S. economy is well-positioned to withstand the resulting headwinds, according to U.S. Deputy Treasury Secretary Wally Adeyemo.
China's economy is facing a series of crises, including a real estate and debt crisis, record joblessness, and a growing lack of confidence, leading to decreased spending and investment.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which could lead to softer consumer spending and a decrease in stock market returns. Additionally, the resumption of student loan payments in October and the American consumer's credit card addiction pose further uncertainties for the economy. Meanwhile, Germany's economy is facing a contraction and a prolonged recession, which is a stark contrast to its past economic outperformance.
China's economy is facing multiple challenges, including tech and economic sanctions from the US, structural problems, and a decline in exports, hindering its goal of becoming a top global exporter and tech power, which could have long-lasting effects on its status in international relations and the global economy.
UBS reports higher than expected profits, job creation in the US slows, and markets rally on weaker economic data and hope for a pause in interest rate hikes. China's factory activity shrinks but at a slower pace, while retail sales increase. There are opportunities for investors in other Asian markets.
The U.S. economy has shown unexpected strength, with a resilient labor market and cooling inflation improving the odds of avoiding a recession and achieving a soft landing, but the full effects of rising interest rates may take time to filter through the economy.
China's Huawei Technologies' development of an advanced chip for its latest smartphone demonstrates the country's resilience in the face of U.S. sanctions, but the costly efforts may lead to tighter restrictions from Washington, according to analysts.
Apple Inc. experienced a significant decline in its stock price after reports emerged that Chinese government agencies have banned the use of iPhones and other foreign-branded devices by their staff.
Apple stocks fell 3.6% after China reportedly banned officials from using or bringing iPhones and other foreign-branded devices into the office, signaling Beijing's push to reduce dependence on American technologies.
Stocks sold off and major indexes closed in the red, while U.S. Treasury yields rose for the second consecutive day; China's trade activity fell in August, but not as badly as expected; Apple signed an agreement with Arm that extends beyond 2040, securing access to the Arm architecture; China reportedly banned government officials from using Apple's iPhone for work; and inflationary pressures and the threat of higher interest rates are causing market concerns.
Big tech, including Apple, faced pressure as concerns grew over China potentially expanding its iPhone ban, while equity futures fell due to strong jobless claims figures, reinforcing the case for the Federal Reserve to maintain elevated interest rates.
Apple's recent sell-off due to concerns about a Chinese crackdown on iPhone usage among government workers should not deter investors from the tech giant.
Apple shares face a downturn as China plans to extend its ban on iPhones to government agencies and state companies, potentially wiping out $200 billion of the company's market value, as China's economic crisis threatens demand for consumer electronics and rising US Treasury yields add to Apple's troubles.
US companies with significant revenue exposure to China are at risk due to the country's struggling economy, characterized by high youth unemployment rates and recent property defaults, according to Bank of America.
Oil prices surge to the highest level in 10 months as Saudi Arabia and Russia extend production cuts, raising concerns about inflation and higher interest rates, while the resilient U.S. economy strengthens prospects for interest rate hikes; tensions escalate in the auto sector as contract negotiations with major automakers continue; GameStop CEO Ryan Cohen faces scrutiny from the SEC over stock trades; Apple's market value plummets due to concerns over China's ban on public workers using foreign-branded devices; semiconductor stocks weaken amid export restrictions on China; energy sector excels while industrials and utilities lag; upcoming key economic data to watch includes inflation rate, Producer Price Index, retail sales figures, and Michigan Consumer Sentiment data.
Rumors of an iPhone ban for government employees in China caused major market benchmarks, including Apple (AAPL), to experience a down week and sparked concerns over tensions between the US and China.
Consumer spending has remained resilient, preventing the US economy from entering a recession, and this trend will likely continue due to low household debt-to-income levels.
Google faces a trial over allegations of over-reaching its power on online search, marking a significant milestone in the influence of Big Tech; global fuel supply is strained by record-breaking heat, the possibility of a recession is seen as less likely, the G20 summit results in compromise language on Russia's invasion of Ukraine, the US Space Force launches early warning satellites to track potential threats from China or Russia, workplace diversity efforts may be affected by the Supreme Court's ruling against affirmative action, frugality pays off for Republican presidential candidates Nikki Haley and Mike Pence, Apple's product unveiling includes the iPhone 15 and new smartwatches, bond traders anticipate further interest-rate hikes by the Federal Reserve, and US retail workers face challenges including low pay and high turnover.
Fears over Beijing's ban on iPhones for government officials in China may be exaggerated, as analysts predict the impact will be minimal and Apple's support of millions of jobs in the country could deter further restrictions.
Renewed curbs on the use of Apple devices by government officials in China have raised concerns among Apple's investors and heightened geopolitical tensions between the US and China.
Equities edge down as inflation increases more than expected, mortgage applications reach lowest level since 1996, Apple's iPhone updates disappoint investors, UBS initiates coverage on Ford with a buy rating, China denies ban on government workers using foreign-branded devices, JPMorgan downgrades Oracle, antitrust lawsuits against Google begin, and Arm Holdings' IPO is expected to be the largest listing of the year.
Apple is facing growing troubles in China, with tensions rising between the US and China, the ban on government employees using iPhones, and China's economic woes, prompting the tech giant to shift its focus to India as a potential market for growth.
China's economy is facing potential decline due to high debt levels, government interference, and an aging population, with warnings of a full-blown financial crisis echoing the 2008 US recession. Failure to liberalize the economy could have long-term consequences, as foreign investments are restricted and the lack of capital inflow and outflow could harm businesses.
China's struggling economy, including its deflation and property crisis, will have a significant impact on the US due to its high foreign investment exposure in China and the dependence of key exporting countries like Chile, Australia, and Peru on the Chinese market.
The US economy shows signs of weakness despite pockets of strength, with inflation still above the Fed's 2% target and consumer spending facing challenges ahead, such as the restart of student loan payments and the drain on savings from the pandemic.
US stocks slumped as reports of China's recovering economy caused concern, potentially impacting global stock exchanges, while the US auto workers' strike and oil price rallies also contributed to market fluctuations.
The article does not mention any specific stock recommendations. However, it discusses Apple (NASDAQ:AAPL) extensively and highlights the author's positive view towards the company's valuation and growth prospects.
The author's core argument is that while Apple's growth has slowed, its elevated valuation is justified due to factors such as its superior competitive position, strong brand and connection with consumers, solid prospects for future growth, and strong financial position.
Key information and data mentioned in the article include:
- The Wall Street Journal reported that the Chinese government had banned iPhones for government employees, but the Chinese government later denied this report.
- If the ban had been true, analyst Dan Ives estimated it would be a hit of half a million iPhones, but he referred to it as "more bark than bite."
- Apple's growth has slowed, but its high valuation is justified due to its many advantages, including its competitive position and strong financials.
- Apple's valuation is less dependent on current earnings and more focused on long-term prospects.
- Apple's revenue is comparable to other massive companies, but it still has room for growth, especially in the high-margin services segment.
- Apple's dependence on China is both a risk and an advantage, as China is also dependent on Apple.
- The Chinese economy is facing challenges, and a cooperative relationship between the US and China would benefit Apple and the global economy.
- The author believes that Apple's strong management and adherence to secrecy and compartmentalization give it a unique edge.
- The author suggests that expectations for Apple may be too low if globalization is not receding as expected.
U.S. Treasury Secretary Janet Yellen believes that the U.S. economy is on a path of a "soft-landing" and can withstand near-term risks, including a United Auto Workers strike, a government shutdown threat, a resumption of student loan payments, and spillovers from China's economic issues.
The US economy may struggle to achieve a "soft landing" with low inflation and low unemployment due to several economic uncertainties and headwinds, including toughened lending standards and the resumption of student loan payments, according to experts.
The U.S. economy is expected to face challenges in the fourth quarter, including a potential shutdown, strikes, and persistent inflation, according to Federal Reserve Chairman Jerome Powell.
The US economy is currently in decent shape, with a resilient labor market, moderated inflation, and expected strong GDP growth, but there are potential headwinds and uncertainties ahead, including UAW strikes, student debt payments resuming, and the risk of a government shutdown, which could collectively have a significant impact on the economy. Additionally, the labor market is slowing down, inflation remains a concern, and the actions of the Federal Reserve and other factors could influence the economic outlook. While there are reasons for optimism, there are also risks to consider.
The US economy's resilience may be temporary as the trillions in stimulus spending and resulting debts could lead to a long and slow grind, similar to what other nations have experienced, warns Ruchir Sharma.
White House economic adviser Jared Bernstein warns that the US economy faces challenges from a possible government shutdown, student debt payments restarting, higher interest rates, and an autoworkers' strike. However, he believes that as long as there are no policy mistakes or external shocks, the economy will continue to perform well.
The strength of the US consumer, which has been propping up the economy, is starting to crack due to factors such as student loan payments, soaring gas prices, rising insurance premiums, dwindling personal savings, and potential disruptions like the United Auto Workers strike and a potential government shutdown, raising concerns about a possible recession.
The US may be at risk of a recession due to factors such as a potential auto strike, the resumption of student-loan repayments, rising oil prices, and a global economic slowdown.
Summary: The U.S. stock market had a bad quarter, with all indexes falling, while the World Bank lowered its growth forecast for developing economies in East Asia and the Pacific, and China's demand for commodities continues to grow despite the downgrade. Additionally, a last-minute spending bill was passed to avoid a government shutdown, and this week's focus will be on the labor market.