Markets began and ended this week on some rough notes leading to stocks underperforming overall for the week.
China Cracks Down AgainChina dominated headlines after reports that the government intends to break up the financial giant Ant Group. The report came before news that the casino industry will likely be facing increased regulation in Macau and the appointment of government representatives could be made to oversee operations. As a result, U.S. casino stocks with operations in Macau fell sharply on Wednesday and extended losses on Thursday as investors took in the information.
The threat of increased regulations in Macau brings back into focus the motives of the People’s Republic of China. Much can be said about what the communist government wants and how it goes about reaching those goals but at the end of the day it wants what is best for the party.
Thus, the question becomes how do U.S. gambling companies in China help the communist party and its standing in the world? Having capital flow from foreign investors into electric vehicles, drones, or other industries can help strengthen China's economic power but having Chinese citizens spend money in foreign-controlled casinos for the benefit of foreign investors doesn’t do much good for China. This crackdown has more than a few similarities with China’s recent talks to increase regulations in mobile gaming.
The bottom line is that China is going to what it wants and investors should take note that when investing in companies with with significant operations in China.
Economic DataDomestically, some new economic data was released this week with the Consumer Price Index (CPI) and Retail Sales being the most significant. Core CPI rose less than expected. A relief to many, with a 0.1% increase last month following July’s 0.3% (analysts were expecting another 0.3% increase). The rise in inflation has cooled off since spring/early summer when a variety of issues pushed prices higher, particularly in certain industries. It appears some of that inflation is cooling off and the transitory pressures are fading with producers able to meet demand in far more industries now.
Additionally, retail sales numbers for August came in strong with 0.7% growth after the previous month’s decline of 1.8%. Economists had actually expected a 0.7% decrease in sales for last month. The growth in sales however was not seen across the globe with both China and the United Kingdom experiencing a drop in sales. The U.K. in particular marked the fourth straight month of declining retail sales.
Earnings Wrap-upLastly, earnings were very light this week with the only big firms to report quarterly performance being Oracle (ORCL), FuelCell Energy (FCEL), JinkoSolar (JKS), and Manchester United (MANU). All but Manchester surpassed earnings estimates with even MANU stock rising following the miss on profits and revenue. However, ORCL stock did tumble after the report with a miss on revenue projections.
All in all, the S&P 500 lost 0.57%, the Dow Jones Industrial Average fell 0.07%, and the NASDAQ dropped 0.47%.