Finimize - 🇨🇳 China lost steam

What’s going on here?

Home Depot didn’t quite nail its results update on Tuesday.

What does this mean?

Home Depot had a wild ride during the pandemic, but all parties – even outdoor ones – must eventually come to an end. As inflation and interest rate hikes nibble away at household budgets, it seems folk are trading their hammers for plane tickets and beachside mojitos. And sure, building materials and plumbing are still holding the homeware fort, but big-ticket items like patio sets and grills are feeling the cold shoulder (along with the actual cold, wet weather last quarter). Add plummeting lumber prices to the mix, and you get Home Depot’s most underwhelming revenue performance in over 20 years. And the company isn’t bursting with optimism about its future either, slashing its yearly sales target and bracing for an even steeper profit dive. Shares, predictably, dropped 5% at first.

Why should I care?

For markets: Spring hasn’t sprung.

Spring usually brings a home improvement bonanza, with DIY amateurs and pros alike itching to kick off projects in the warmer weather. But Home Depot’s outlook suggests it hasn’t spotted any silver linings this quarter. That doesn’t bode well for its smaller rival, Lowe’s, which saw its share price wobble after the news. And this hiccup might be even bigger than the home improvement sector too: Home Depot’s results are casting a shadow over the entire US retail sector just as heavyweights like Target and Walmart gear up to share their own results.

The bigger picture: Receipts aren’t looking like phone numbers.

Fresh data revealed that retail sales inched up 0.4% last month, marking the first growth spurt in three months. But this modest comeback is more of a two-step than a whole tango, falling short of economists’ predictions. And it could be hard to maintain too: credit card balances saw one of the biggest spikes on record in March, hinting that consumers may be nearing their spending limits.

What’s going on here?

Data out on Tuesday showed China's chipper recovery is starting to lose its oomph.

What does this mean?

You’re not the only one whose New Year resolutions haven’t survived the spring: after a burst of activity at the beginning of 2023, China's economic rebound is losing steam. Sure, retail sales in April jumped 18.4% from the same time last year, the biggest increase in over two years. But that surge was partly due to last year's lockdown in Shanghai – and the numbers still fell short of economists’ hopes. Industrial output didn't hit the target either, which isn't surprising considering the weak global economy. And while the overall jobless rate did ease up from March, youth unemployment set a record high – suggesting that cautious businesses aren't going on any hiring sprees.

Why should I care?

Zooming in: Recovery isn't a piece of cake.

Experts across the board were expecting a smoother rebound from China – and while there’s not much the country can do about the weak global economy, it can do more to get its own house in order. See, right now, consumers and businesses are feeling less than confident, with flagging investments, shrinking imports, and feeble demand for loans. But economists think more stimulus could tap into the economy’s potential: after all, there's still plenty of promise, with households, for example, sitting on trillions in savings right now. So watch this space: just this week the central bank hinted that it’s poised to keep supporting the economy…

The bigger picture: Ironing out problems.

Any moves by China's government won't just make a splash at home: they’ll ripple across the globe. After all, China’s a heavyweight in the world economy, and its fortunes have a big influence on markets like metals. Case in point: nickel and iron ore prices took a hit when the news broke, while copper’s languishing around a months-long low.