Daily Management Review

Wider Impact Of Chinese Slowdown May By Reflected By Apple, Nvidia And Caterpillar


01/29/2019




Wider Impact Of Chinese Slowdown May By Reflected By Apple, Nvidia And Caterpillar
According to analysts, a reflection of a broader global business slowdown because of a slowdown in the Chinese economy can be had from the disappointing results from construction machinery giant Caterpillar and a negative forecast for revenues by chipmaker Nvidia.
 
"Caterpillar and Nvidia are not the first companies to blame China for their afflictions, but both companies are seen as industry bellwethers," Rodrigo Catril, a senior currency strategist at the National Australia Bank, said in a note.
 
Catril said that the forecast from these two companies - Caterpillar and Nvidiam and boiht issuing discouraging guidance — "tend to be regarded as important" because they can "provide a macro/global growth guidance from a business perspective."
 
Hence a worrying picture for Chinese growth is painted by the commentary from both the companies. "Their disappointing results provide further evidence that this time China's slowdown is for real," he said in the note.
 
There was 9.1 per cent drop in the shares of Caterpillar following the weaker-than-expected earnings for the fourth quarter as announced by the company, along with a disappointing forecast and guidance. The company specifically mentioned that lower demand in the Chinese market resulted in the decline of sales in the Asia Pacific region.
 
On the other hand, there was a drop of 13.8 per cent in the shares of Nvidia following the company reducing its fourth-quarter revenue guidance to $2.2 billion from $2.7 billion. The chipmaker said "deteriorating macroeconomic conditions, particularly in China," impacted demand for its graphics processing units.
 
There were also other firms that blamed lower demand in the Chinese market for sale slowdown. Earlier this month, sale forecast was cut by Apple and its CEO Tim Cook specifically mentioned about slowing sale of iPhones in China.
 
"(Caterpillar and Nvidia) highlight that, across a wide spectrum of businesses, China's faltering economy is also having an impact on the US," Tobin Gorey, a strategist at the Commonwealth Bank of Australia, said in a note.
 
According to figures from Goldman Sachs last year, foreign sale accounts for about 59 per cent of the sales for Caterpillar and about one fourth of its total revenues are derived from the Asia Pacific region.
 
According to experts, American companies are being hit hard by a slowdown in China and the impact has been exacerbated by the ongoing trade war with the United States. The trade war "highlights a very fundamental truth about US‑China relations", according to Gorey.
 
"The two are unavoidably symbiotic. Both are huge influences on the world economy. The pair thus cannot separate themselves," he said. "And the economic health of one correlates positively with the other. So if one inflicts pain on the other, they both eventually feel it too."
 
The picture of a weaker outlook for the peak earnings season is reflected by the guidance from Caterpillar and Nvidia according to Margaret Yang, market analyst at CMC Markets. Earnings are yet to be reported by more than 100 S&P 500 companies which includes names such as Apple, Microsoft, Amazon and Facebook.
 
"The trade and growth uncertainties surrounding markets over the past few months has started to materialise and Trump's radical trade policy has resulted in adverse economic impact to even the American companies," Yang said in a note.
 
(Source:www.cnbc.com)






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