Investment banks cut China GDP forecasts as confidence wanes
Analysts increasingly sceptical that Beijing will reach 5% economic growth target for 2024
Investment banks are cutting their growth forecasts for China, believing Beijing risks undershooting its official target of about 5 per cent as confidence wanes in the world’s second-largest economy.
Bank of America on Wednesday lowered its forecast to 4.8 per cent from 5 per cent and Canadian investment bank TD Securities cut to 4.7 per cent from 5.1 per cent. The moves followed a UBS cut last week and a series of similar reductions over the summer.
Economists at Citi this week warned that Beijing’s official growth target — which is the lowest in decades at “around 5 per cent” — “could be at risk”, adding to mounting concerns over the trajectory of China’s economy as policymakers grapple with a prolonged property sector slowdown and weak consumer and investor confidence.
The median forecast for full-year gross domestic product growth across dozens of economists polled by Bloomberg has slipped to 4.8 per cent, compared with 4.9 per cent in mid-August. Last year, China grew 5.2 per cent, in line with forecasts.
Bank of America analysts said China’s growth engine was “sputtering” in the second and third quarters, adding that the economy “continues to struggle with a confidence problem”.
For decades, China’s GDP growth easily met the government’s target, which is announced at a meeting of the rubber-stamp parliament early each year. But in the wake of the Covid pandemic, the figure has attracted close scrutiny.
“I think [the reason] why it’s now acquired an increased importance is [that] there are obviously downside risks to growth,” said Frederic Neumann, chief Asia economist at HSBC, which expects 4.9 per cent growth. “By putting the growth target out there, you’re anchoring expectations in the market.”
He added there was “little doubt” Chinese policymakers could steer growth towards 5 per cent given their “strong grip on the economy”.
Weaker than expected second-quarter growth of 4.7 per cent in July set off a flurry of forecast cuts. Goldman Sachs, Citi and Barclays reduced their full-year growth targets in July to 4.9, 4.8 and 4.8 per cent respectively, all from 5 per cent. JPMorgan expects growth of 4.6 per cent.
UBS chief China economist Wang Tao last week said the Swiss bank, which now projects growth of 4.6 per cent for 2024 and just 4 per cent for 2025, lowered its expectations “due to a deeper-than-expected property downturn which we believe has yet to bottom” and its impact on “household consumption”.
UBS has also revised down its China GDP deflator, which reflects the difference between nominal and real prices, because it expects “deflationary pressures to persist for longer”.
Ahead of August data releases next week on the economy and inflation, Citi on Tuesday said China last month suffered a “double whammy of weather shocks and weak demand”, pointing to an 8.5 per cent contraction in steel output, widening from 5.3 per cent in July.
Hunter Chan, an economist at Standard Chartered, which has forecast 4.8 per cent growth for the year, also pointed to the risk of “escalating trade tensions between China and other economies” on top of the drag from a housing slowdown in the first half. “Right now, the government’s policy on the housing sector is about stabilising [it],” he said.
China missed its 2022 GDP target, expanding just 3 per cent on a goal of 5.5 per cent after a series of Covid lockdowns. A drumroll of disappointing data releases this year has spurred calls for more government stimulus.
Alex Loo, a strategist at TD Securities, projected Beijing would miss its target again this year unless there was a mid-year budget expansion, citing “faltering spending”, a lack of private investment and “pessimism taking hold” among domestic companies and major importers.
He said officials were likely to “steer away from mention of the target like in 2022” if the August data misses expectations again.
After Hours Summary: GTLB +12.4 up big on earnings; ZS -12.8%, ASAN -12.7%, and PD -12.4% among laggards following quarterly results; NVDA -2.3% down on DOJ subpoena, according to Bloomberg
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: GTLB +12.4%, OS +0.7%, HLX +0.1% (guidance)
Companies trading higher in after hours in reaction to news: CLOV +20% (subsidiary signs agreement with The Iowa Clinic, P.C. to deploy AI tech), AURA +7.2% (to host urologic oncology investor event), CLLS +3.5% (presents pre-clinical evidence), RNG +2% (CFO resigns), RYAM +1.3% (increasing prices for Cellulose Specialties products), AMD +0.7% (former VP of AI initiatives at NVDA joining company), BTSG +0.5% (to acquire Haven Hospice for $60 mln), CRM +0.1% (to acquire Tenyx), CW +0.1% (awarded $26 mln Belgian Air Force contract)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: ASND -19.1% (enters into $150 mln funding agreement with Royalty Pharma), ZS -12.8%, ASAN -12.7% (also names new CFO), PD -12.4%, HQY -2.7% (also authorizes up to $300 mln for repurchases), GPK -1.1% (guidance)
Companies trading lower in after hours in reaction to news: ATHA -75.3% (topline results from Phase 2/3 LIFT-AD clinical trial of fosgonimeton), ULS -4.8% (stock offering), IRT -4.3% (stock offering), PACS -3.5% (stock offering), STWD -3.1% (stock offering), MGX -2.4% (preclinincal data for Lead Hemophilia A Program), NVDA -2.3% (receives DOJ subpoena, according to Bloomberg), STC -1.9% (increases dividend), CIFR -1.6% (files mixed shelf), AKBA -1.4% ($250 mln mixed shelf offering), PCVX -1.2% ($1.0 bln stock offering and pre-funded warrants), ARCB -1.2% (provides prelim August metrics), NOC -0.1% (awarded U.S. Navy contract), PFE -0.1% (Acepodia enters strategic clinical collaboration with Pfizer)
Hamas Threats to Kill Hostages Could Weaken Group’s Hand in Negotiations
Without a deal to end the war, Hamas leader Yahya Sinwar and his fighters would be forced to stay underground
DUBAI—Palestinian militant group Hamas suggested it would execute Israeli hostages if Israel’s military attempted further rescue missions, as both sides double down on demands to end the war in Gaza.
Hamas’s implied threat on Monday could be an attempt to widen the rifts in Israeli society over the captives and increase pressure on Israeli Prime Minister Benjamin Netanyahu to agree to a cease-fire deal.
But killing more hostages could cost the U.S.-designated terrorist group one of the most powerful bargaining chips it has as it tries to negotiate for its own survival after months of punishing warfare.
Hamas, after saying for days that Israel had killed the hostages with its bombing campaign in Gaza, issued a new statement Monday suggesting it had executed them and would do so again if Israel used military force to free them. Israel’s rescue missions aren’t expected to end unless there is a deal to release the hostages and end the fighting.
Without a negotiated end to the war, Hamas leader Yahya Sinwar and his fighters won’t be able to leave the tunnels in which they are hiding without risk of being killed by Israel. Instead, they will need to persevere as Israeli forces penetrate more deeply into Hamas’s subterranean lairs.
Hamas’s believed execution of six hostages last week sparked protests and a general strike by Israelis who want their government to agree to a cease-fire and hostage-return deal. But there are also many Israelis who view the killings as another reason the war must go on until Hamas is completely destroyed.
For Hamas, having fewer living Israeli prisoners also makes it harder to win the release of thousands of Palestinian prisoners held in Israeli jails—something Sinwar has used as a justification for the group’s Oct. 7 attack that killed over 1,200 people, mostly civilians, according to Israel, and abducted more than 240 civilians and soldiers.
Freeing Palestinian prisoners is also important to sustaining the group’s legitimacy after 11 months of war have destroyed most of Gaza and, according to local authorities, resulted in the deaths of more than 40,000 Palestinians. The figure doesn’t distinguish between civilians and combatants.
Of the remaining 97 hostages taken on Oct. 7 to Gaza, 33 of them have been declared dead by Israel. In talks with mediators, Hamas has said it might have no more than 30 living hostages in total, including 12 women, elderly or injured people, according to Arab mediators.
Hamas has managed to survive an 11-month-long offensive by a militarily superior foe. But as the Israeli military continues to expand its control, taking over key crossings and borders, dismantling tunnels and killing senior leaders, Hamas’s survival is under growing threat.
“This is an outcome of the chaotic situation that Hamas finds itself in,” said Kobi Michael, a senior fellow at the Institute for National Security Studies, a security think tank in Tel Aviv, of the threat to execute more hostages. “Hamas cannot operate any more as an organized military.”
Even so, Hamas’s goal in the war is simply survival. If Sinwar and others can achieve a cease-fire and emerge from hiding, they can claim victory and will likely be seen as the leaders of the Palestinian cause. In the absence of a cease-fire, Hamas could drag Israel into a prolonged occupation of Gaza that is likely to sap the strength of its military and prove unpopular among Israelis in the long term. Either way, the war has created a new generation of Palestinians who are openly hostile to Israel.
Israel says it has largely ended Hamas’s ability to function as an effective military, although militants continue to fight Israeli soldiers. Hamas says it can no longer communicate within the Gaza Strip, and its leaders in Qatar have largely lost touch with those in the area, according to Arab officials.
Israel says Hamas militants have started moving into humanitarian zones, a sign that the group has fewer places to hide. Last week, the Israeli army said it rescued a hostage after his captors had fled.
Israel announces killings of militants nearly daily. On Tuesday, the Israeli military said an airstrike killed eight Hamas members, including one who led an attack on an Israeli community on Oct. 7 when Hamas killed a father in front of his two young boys.
Hamas says it is able to quickly recruit new fighters, but they won’t have the same level of training as the ones who were killed.
“There’s no secret about the fact that Hamas has been weakened,” said Mkhaimar Abusada, associate professor of political science at Al-Azhar University in Gaza and now based in Cairo. “But it hasn’t been weakened to the point that they are going to surrender.”
The Israeli military is also taking greater control inside the strip, damaging the influence of Hamas as a civilian administrator.
Earlier this week, Israel facilitated the vaccination of thousands of children in Gaza against the polio virus. Gazans also say there is an increased Israeli presence in two major corridors that run across the strip, a reminder of the days before Israel withdrew from Gaza in 2005.
“I never thought we would see Israelis between us again, but here they are, they can come in and out any minute,” said Badr Abu Yousef, a 29-year-old electrician in Gaza City.
Some Arab negotiators said they believe Hamas’s threats reflect growing disarray inside the organization. Hamas has told negotiators for months that it needed a pause in fighting to track and collect the hostages held by it and other groups.
On Monday, a senior Hamas official, Khalil al-Hayya, said that Hamas’s armed wing lost contact with U.S.-Israeli citizen Hersh Goldberg-Polin, one of the six hostages killed, and his guards, after having released a video of him in April.
But then on the same day the group released a video on its Telegram channel saying it had recorded Goldberg-Polin’s final words.
“These conflicting messages will have great implications on the already complicated talks,” said one Arab mediator. “Israel has always been suspicious of Hamas claims that they did not have information on all the hostages.”
In Israel, Netanyahu’s government faces criticism from many Israelis for failing to agree to a deal and for failing to communicate a clear postwar plan for Gaza.
Israeli military officials have said the army has caused enough disruption to Hamas in Gaza, including killing its top two military leaders, and that the group can’t repeat the scale of attacks on Oct. 7.
Netanyahu has insisted that Hamas in Gaza be destroyed, militarily, and that Sinwar—who so far has successfully evaded Israeli forces—be killed.
“Killing Sinwar, of course, would be a huge victory, but it isn’t going to address, ultimately, the security problem inside Gaza,” said Sanam Vakil, a Middle-East expert at the U.K.’s Chatham House think tank. “The failing of Israel’s strategy is that they’re not willing to think about any other solution besides a military one.”
The Israeli military has become frustrated with Netanyahu’s demand in cease-fire negotiations that Israel retain control of the Netzarim and Philadelphi corridors. His critics allege the prime minister’s calculations are political: Far-right members of his coalition have threatened to topple the government if he agrees to end the war. Polls show Netanyahu wouldn’t be re-elected if elections were held now.
But Netanyahu argues that pulling Israeli troops from Philadelphi, which divides Gaza from Egypt, and Netzarim, which cuts across the enclave, would allow Hamas to reconstitute, undermining his war aims.
Political analysts and mediators who talk with Hamas say the group is unlikely to agree to those cease-fire terms, which would see it give up hostages in return for circumstances that hasten the group’s demise.
“There is no doubt that the death of many Israeli prisoners made the card Hamas has weaker,” said Istanbul-based Ibrahim Al-Madhoun, a political analyst close to the group. “But Hamas is not giving up.”
Constellation Brands Cuts Outlook on U.S. Wine Market Woes
Constellation Brands also cut its sales growth expectations for its Enterprise, Beer and Wine & Spirits divisions.
Constellation Brands plans to book a loss of up to $2.5 billion related to its wines and spirits business, as prolonged negative trends in the U.S. wine market continue.
The maker of Corona and Modelo beers, and Robert Mondavi and Casa Noble wines, also said it is facing slowing sales across its business as macroeconomic challenges – particularly rising unemployment – hurt demand.
The company on Tuesday said the noncash goodwill impairment charge of between $1.5 billion and $2.5 billion would hit results in the second quarter. It cut its full year per-share earnings outlook to between $3.05 and $7.92, down sharply from prior expectations of between $14.63 and $14.93.
Constellation in July raised its profit outlook, after recording a big jump in first-quarter profit helped by rising beer sales and improved margins.
On a comparable basis, the company on Tuesday raised the lower end of its per-share earnings guidance, now expecting between $13.60 and $13.80, from $13.50 and $13.80 previously.
Constellation said the impairment reflects updated expectations for its wine and spirits business, where sales trends in the U.S. wholesale market remain negative. It now expects sales in that division to be down between 6% and 4% this year, whereas it had previously forecasted sales would be roughly flat from the prior year.
The company is adjusting prices and boosting marketing to help some of its wine and spirits brands combat significant sales headwinds.
Other winemakers have reported challenges as well. In June, Duckhorn Portfolio cut its outlook after sales were pressured by the soft wine market.
Constellation’s beer business is experiencing softer-than-expected sales but holding up better than wine and spirits. The company expects beer sales to be up between 6% and 8% this year, down slightly from its prior view.
Chief Executive Bill Newlands said the challenging trends have been most notable in the top five states for its beer business, which account for more than half of its sales volumes. He said the company has seen a slight shift to customers buying value packs or buying at value-oriented channels.
The company’s overall sales growth is expected to be between 4% and 6% this year, down from its prior view of between 6% and 7%.
Crude hits year low on speculation Libyan output will resume
Brent drops 5 per cent on global oversupply concerns
Oil prices fell to their weakest levels this year following a report that Libya may shortly restore full production, adding to fears that weak global demand will create an oversupply on the market.
Brent crude, the international benchmark, fell as much as 5 per cent to $73.67 on Tuesday, its weakest level since December and the first time it has slipped below $75 since January. The US equivalent, WTI, slid by 4.5 per cent to $70.25.
The drop in prices came after Bloomberg reported that Sadiq al-Kabir, the central bank governor at the centre of a dispute between two rival factions, said there were “strong” indications of a compromise.
Investors fear that Libya, which shut down around 60 per cent of its $1.2mn barrels a day of oil last week, could shortly restore full output, adding to concerns over weak demand from China, the world’s largest importer of oil.
Crude prices have been volatile in recent weeks as investors weigh the impact of the tensions, which was expected to last several months. Libya accounts for less than one per cent of the world’s daily output.
The country’s eastern government, which is not recognised internationally, shut down large parts of the country’s production and exports, which analysts said was part of an escalating power struggle between the factions over the position of al-Kabir. The central bank holds billions of dollars in oil revenue, which is Libya’s only source of income.
Abdul Hamid Dbeibeh, prime minister of the Tripoli-based government in the west, has been trying to replace al-Kabir, who is backed by the east-based parliament and Khalifa Haftar, the warlord who controls eastern Libya.
Some traders and analysts speculated that there was enough global supply to make up the shortfall, as demand from China has been weaker than expected. But there has also been speculation that the Opec cartel will delay a plan to increase production during the fourth quarter.
The International Energy Agency last month predicted that growth in demand for crude would soften at the end of the summer US driving season. It said a contraction in China had helped limit growth in demand during the second quarter.
“Notwithstanding that a large share of Libyan oil production is offline, oil prices are capitulating as investors remain laser focused on the demand-side of the equation with apprehensions that China’s economic malaise is worsening,” said Ehsan Khoman, head of commodities at MUFG.
However prices have been supported by speculation that Opec+ producers may delay production increases that are due in the fourth quarter because Saudi Arabia, the cartel leader, needs to finance its ambitious infrastructure projects.
“The market has been divided over whether the producer group is poised to relaunch a battle for market share, or if it will maintain cohesion and continue to exercise caution about supply increases,” Helima Croft, head of commodities research at RBC Capital Markets, wrote in a note this week. “We still remain in the latter camp.”
Lebanon’s former central banker detained on corruption allegations
Riad Salameh has been the focus of investigations in his home country, the US and at least seven European countries
Lebanon’s veteran former central bank governor was on Tuesday detained in Beirut as part of a long-running probe into corruption allegations, according to a senior judicial source and a person with knowledge of the case.
Riad Salameh, 74, spent three decades in charge of the Banque du Liban before standing down just over a year ago. His final years at the institution were dogged by controversy and allegations that he engaged in financial mismanagement and criminal conduct.
Salameh and his brother Raja Salameh are accused of siphoning off at least $330mn in public funds, laundering those through a maze of international bank accounts and offshore accounts tied to his family and associates.
While Salameh had been previously charged by a Lebanese investigating judge over this scheme, his detention on Tuesday was related to fresh allegations of embezzlement, money laundering and fraud, the sources said. He is expected to remain in pre-trial detention for four days, while investigators continue to question him over the newer allegations.
Salameh has been the focus of years-long judicial investigations in his home country, the US and at least seven European countries probing various allegations of financial crimes tied to the alleged embezzlement of those funds.
France and Germany issued arrest warrants against him in 2023, the same year he was sanctioned by the US, UK and Canada over allegations that he abused the powers of his office “to engage in a variety of unlawful self-enrichment schemes”.
He is widely blamed by the Lebanese public for his role in helping usher in Lebanon’s ruinous economic and financial collapse in 2019, becoming the public face of Lebanon’s downward spiral.
The World Bank called the financial crisis a “deliberate depression orchestrated by the country’s elite that has long captured the state and lived off its economic rents”.
Salameh did not immediately reply to a request for comment. Riad and his brother Raja Salameh have repeatedly denied all wrongdoing, with Salameh saying that his wealth was accrued in his years as an investment banker and subsequent wise investments.
Salameh was summoned on Tuesday as part of the Lebanese judiciary’s sprawling investigation, which has repeatedly stalled amid what critics have described as political interference. He has previously been charged with financial crimes relating to the $330mn scheme in Lebanon, but has so far evaded detention.
He is expected to remain in pre-trial detention while he continues to be interrogated over his and the BdL’s dealings with Optimum Invest, a Lebanese brokerage firm, the sources said.
Lebanon’s state-owned National News Agency said Salameh was detained after he was questioned in connection with “the Optimum file”.
Specifically, investigators allege that the BdL and Optimum worked together to buy and sell treasury bonds and certificates of deposit with quick turnovers to make major profits through commissions between 2015-2018, the sources said. The allegation against Salameh included embezzlement, money-laundering and fraud.
While similar in nature, the Optimum charges are separate to the case of the $330mn allegedly embezzled in public funds through Forry Associates, a company controlled by Salameh’s brother Raja.
Optimum did not respond to a request for comment. In a statement posted to its website, the company said that a financial audit in 2023 had found “no evidence of wrongdoing or illegality” in the company’s dealings with the BdL.
Lebanon is currently governed by a caretaker cabinet with limited powers, which did not appoint a new BdL governor. Instead, Salameh’s former vice-governor has been at the helm of the monetary authority.
Caretaker prime minister Najib Mikati said his government would not intervene in the case. “Justice has said what it had to say, and we respect this decision,” caretaker justice minister Henri Khoury said.
European Commission to investigate Ticketmaster’s ‘dynamic pricing’
Review follows UK competition watchdog’s announcement of ‘urgent review’ into Oasis concert tickets fiasco
Ticketmaster’s ability to raise the price of concert tickets based on demand is being investigated by the European Commission, the Guardian has learned, as the UK’s competition watchdog launches an “urgent review” into the Oasis concerts fiasco.
The US-owned ticketing giant has been told it may have breached laws in the UK and Europe for inflating the price of some Oasis tickets from £135 to £350, leaving many fans devastated.
Ticketmaster has compared its use of “dynamic pricing” to airlines and hotels, which increase costs based on demand, and has said the prices are set by artists and their management.
The UK’s Competition and Markets Authority (CMA) said on Tuesday it was “urgently reviewing” the use of dynamic pricing after Oasis fans criticised the “scandalous” inflation of ticket costs.
A spokesperson for the regulator said: “Consumer protection law requires businesses to be fair and transparent in their dealings with consumers, and businesses must give clear and accurate information about the price people have to pay. Failure to do so may breach the law.”
A spokesperson for the European Commission confirmed it was looking into the use of dynamic pricing for concert tickets amid growing concerns among parliamentarians in Brussels.
Lara Wolters, a Dutch MEP, told the Guardian she wanted new laws to protect European consumers against this type of price inflation.
She said: “The only winners in this situation are big ticketing platforms, at the expense of fans who find themselves priced out of gigs. Companies know far more about their customers than vice versa.
“This is not a system that seeks to maximise joy by filling the stadium with an artist’s biggest fans, but to maximise profit from music like any other product.
“As a music fan, I find this soulless and I want to put a stop to it, so I’m pleased to see the UK government is looking into this, and I expect the new European Commission to follow suit so we can finally bring in new rules against unfair ticketing.”
Dynamic pricing for concerts is common in the US but relatively new in the UK and Europe.
A spokesperson for the European Commission confirmed it was examining the practice as part of its “fitness check” of EU consumer laws, due to be published in the coming months.
The review is expected to highlight the problems of dynamic pricing before MEPs consider solutions, including a potential ban and other less extreme options.
The spokesperson said that while the practice itself was not unlawful, the way it was used could breach EU directives – such as if the price of a product was increased after a consumer had placed the ticket in their online basket.
It could also breach EU laws if ticketing websites failed to give fans “necessary material information” about the tickets they offered before they were purchased.
Hundreds of fans have lodged official complaints with the UK’s Advertising Standards Authority (ASA) on the basis that Ticketmaster had not told people in advance that £350 tickets would be on sale.
These tickets provide no additional value than the original £135 standing tickets. Four of the “in-demand” standing tickets cost fans £1,423.55 in total – of which £73.55 was service charges and processing fees.
Fans only discovered that the cost of a standard Oasis ticket had been increased when they reached the checkout after spending several hours in online queues.
The CMA has said greater protections are needed for concertgoers and has previously taken action against major resale websites.
Lisa Nandy, the culture secretary, has said she wants to end “rip-off resales” and the government has launched a review of the practice.
The Guardian has approached Ticketmaster for comment. Neither Oasis’s management or the Gallagher brothers have commented on the criticism.