Green shoots in China nipped in the bud?

Summary:

• Chinese manufacturing disappoints
• Alphabet drops after announcing revenue miss
• BP blames low prices as profits fall

The latest look at Chinese manufacturing came in worse than expected overnight, with both an official and a private gauge of activity disappointing and suggesting that optimism around the recovery last month may have been premature. Aided by substantial stimulus measures, March saw the manufacturing sector return to growth after 5 consecutive months of contraction but even though the latest readings are once more above the 50 mark, and therefore in expansion territory, the levels of growth remain anaemic at best.

Furthermore, the employment component in the Caixin release was back in negative territory after hitting a 74-month high in March, while new orders increased at a slower rate than in March - largely down to subdued foreign demand. Shares in Shanghai managed to eke out a small gain despite the disappointing data, with investors seemingly of the mindset that bad news isn’t all that bad as it will likely pertain to further rounds of stimulus.

US stocks hit all-time high

US shares extended their rally yesterday with the S&P500 moving up to post a new all-time high, although futures have since pulled back after Google parent company Alphabet posting a pretty bad miss after the closing bell, before the China data dropped and served to further curb any over enthusiasm. The FTSE is trading slightly lower by a few points as the benchmark continues its subdued start to the week with mining shares that are sensitive to the plight of the Chinese economy such as Glencore, BHP Group and Rio Tinto amongst the biggest laggards. The pound is making steady gains and is currently higher against all its major crosses, with the largest gain of 0.4% seen vs the USD.     

Alphabet drops after announcing revenue miss

There was a sharp drop in after-hours trade for Alphabet, after Google’s parent company reported a slower than expected rise in revenue growth. An increase in the top line of 17% for a company that now has an annual turnover of $36.3B would normally be seen as impressive, but analysts had even more lofty forecasts with the figure around $1B less than the street consensus. The shortfall was blamed on numerous factors such as the strength of the US dollar and a strong corresponding quarter last year, but there is a growing concern that the core advertising business may have peaked. Shares are called to begin more than 7% lower this afternoon after ending Monday at their highest ever level.

Shares in Alphabet are called to begin around 1200 this afternoon, some 7% lower than where they ended last night before the trading update. Source: xStation

BP blames low Oil prices as profits fall

For the first quarter of the year BP has announced a slide in profits, with lower oil prices and narrowing refining margins taking their toll on performance. It may seem odd to blame subdued market prices given that crude oil has been one of the biggest gainers in 2019, but the average price in Q1 was below that in Q4 2018 despite the former seeing a large rally and the latter an even bigger decline. Underlying profits on a replacement cost basis were $2.4B for the first three months of the year, compared to $2.6B for the same period in 2018. Shares in BP have taken the release in their stride and are trading a little higher on the day and with Oil benchmarks hovering around their highest level in 6 months as fears surrounding an Iranian sanction related supply shock persists, there could be a more favourable operating environment for BP going forward.  

 Shares in BP are gaining today despite the drop in profits with the market finding some support around the 50 day SMA. Source: xStation