What’s Up With China?
What's up with China? Another 1.7 percent decline in the Shanghai Index, to the lowest level since March 2009, just about the worst performing large stock market in the world.
The Chinese have cut rates twice recently and banks are being ordered to lend more, but investors don't seem to have confidence that these are going to have a big impact. Will they open the floodgates for another round of massive infrastructure spending, like they did in 2008?
Chinese Premier Wen Jiabao said that the nation's recovery has yet to build up momentum.
1) Not a good trend: Retail sales for June were much weaker than expected, down 0.5 percent, consensus was for up 0.2 percent. They were no better excluding autos — down 0.4 percent, consensus was up 0.1 percent. We have now had negative retail sales for three consecutive months, the weakest numbers since May 2010.
Gasoline sales were down 1.8 percent month-over-month, thanks to lower prices. That savings should go into consumer pockets and be spent elsewhere, but it didn't seem like that happened. Consumer appear more cautious.
If this cautiousness continues, the back-to-school season now beginning will be soft. Retailers will have to be heavily promotional, which will put pressure on margins and earnings.
2) Good enough, again. First JPMorgan Chase, and Wells Fargo, now Citigroup also turns in earnings that are "good enough," with second-quarter profit of $1 a share ex-items, above estimates of $0.89. (See complete earnings coverage here.)
True, capital market revenues were weaker, and revenues did fall 9.7 percent from a year ago. But loans and deposits grew, expenses were lower (operating expenses were down 3 percent on a year-over-year basis) and credit quality is continuing to improve.
Glenn Schorr at Nomura called it: "Not bad, considering the environment."
The bank may soon seek to raise its $0.01 dividend.
3) Visa and MasterCard gain 3.2 percent and 2.7 percent, respectively, after the payment-card companies and credit-card issuing banks have agreed to pay retailers $7.25 billion to resolve an antitrust settlement. The settlement, which still needs to be approved by a judge, is seen as a victory for U.S. retailers because it means stores will be able to charge customers more if they make purchases using a credit card — a practice MasterCard and Visa previously banned.
4) German chancellor Angela Merkel said that she would be able to get the Spanish bank bailout pass the German Parliament this Thursday, but in a separate interview again said that any attempt to share any of the debt burdens (Eurobonds, etc.), would have to be preceded by a handover of some sovereignty to Brussels.
5) Sleepy summer so far for initial public offerings, but this Thursday night Palo Alto Networks will price on the New York Stock Exchange. This is a hot space: next-generation network security. More shortly.
—By CNBC’s Bob Pisani
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