Finimize - 🏦 Wall Street was wrong

What’s going on here?

Airbus, the European aircraft behemoth, just hit a sky-high record, inking a deal to sell 500 planes to IndiGo.

What does this mean?

The global aviation industry has been on a rollercoaster ride lately. A few years ago, it was all about grounded fleets and massive losses. But fast forward to today, and we’re seeing soaring profits and gung-ho airlines outbidding each other with record orders. The Paris Air Show, taking place this week after a four-year hiatus, is the perfect stage to showcase that newfound pizzazz – and Airbus has gone and stolen the show, bagging the biggest aircraft order in history from IndiGo, India’s largest airline by market share.

Why should I care?

Zooming in: Possible turbulence.

All that gusto has got some industry veterans warning that airlines might be biting off more than they can chew. Just months ago, Air India set a record with an order for 470 aircraft. Add to that the huge purchases by Ryanair and Saudi startup Riyadh Air earlier this year, and we’re looking at announced deals nearing 1,500 airplanes. See, if economic growth slows and travel demand dips after the post-pandemic rush, airlines could find themselves back in the red. And if that proves to be the case, then they could be back to their loss-making ways sooner than Ryanair starts charging passengers to use the toilet.

The bigger picture: High-flying future.

This deal is more than just a feather in the cap for the aviation industry: it’s a testament to India’s growing global stature. After all, India recently leapfrogged China to become the world’s most populous nation – and unlike China, India’s population is predominantly young and growing. So, with half of its population under 30 and over two-thirds in the working age bracket, it’s no wonder India’s on track to become the world’s fastest-growing major economy in the near future.

What’s going on here?

Chinese banks did a bit of a pivot on Tuesday, cutting their benchmark lending rates for the first time since the dog days of last summer.

What does this mean?

China’s economy kicked off the year at a sprint, but recently, it’s been more of a leisurely stroll. Retail sales, industrial production, and infrastructure spending all dipped in May, which is why the Chinese central bank decided to trim both short-term and medium-term interest rates last week, marking the first cuts since August 2022.

Chinese banks followed suit on Tuesday, shaving their own benchmark lending rates. Both the one-year and five-year “loan prime rates” got a 0.1 percentage point trim, leaving them at 3.55% and 4.2% respectively. The game plan: to make borrowing cheaper and give the Chinese economy a much-needed adrenaline shot.

Why should I care?

Zooming in: Real estate, real difficult.

Investors were crossing their fingers for a bigger, 0.15-percentage-point cut to the five-year rate. You see, that rate’s tied to mortgages, and a heftier cut could have given a greater boost to the country’s ailing property market. And this isn’t small beans we’re talking about: after all, the property sector accounts for a whopping 24% of China’s economy. So, many economists think that it’ll take more than this to breathe life back into the property market – like financial lifelines for cash-strapped developers or government incentives aimed at reducing mortgage down payments.

The bigger picture: The crowd goes mild.
May’s economic slowdown has some economists adjusting their predictions. JPMorgan, UBS, and Standard Chartered all trimmed their 2023 growth forecasts to 5.5% or lower last week. And not to be outdone, Goldman Sachs joined the choir over the weekend, lowering its own forecast from 6% to 5.4%. But let’s not lose perspective: these new estimates still outstrip China’s official 5% growth target – its least ambitious one in over thirty years.