China’s Slowdown Affects Apple, Nvidia, and Caterpillar

The slow Chinese growth has impacted the global businesses hugely. It can be seen from the disappointing results from construction machinery giant Caterpillar and a pessimistic revenue forecast from chipmaker Nvidia.

“Caterpillar and Nvidia are not the first companies to blame China for their afflictions, but both companies are seen as industry bellwethers,” Rodrigo Catril, a senior currency strategist at the National Australia Bank, said in a note released on Tuesday.

The outlooks from those companies issuing disappointing trends- “tend to be regarded as important” because they can “provide a macro/global growth guidance from a business perspective,” Catril said.

So, the status of these companies has finally painted a worrying picture of Chinese growth.

“Their disappointing results provide further evidence that this time China’s slowdown is for real,” he said in the note.

As the industrial giant, Caterpillar posted weaker-than-expected earnings for the fourth quarter and issued that disappointing guidance, its shares fell by 9.1 percent. As per the company, the sales in the Asia Pacific has been affected due to lower demand in China.

Meanwhile, Nvidia also dropped 13.8 percent after slashing its fourth-quarter revenue guidance to $2.2 billion from $2.7 billion. The Company said “deteriorating macroeconomic conditions, particularly in China,” affected demand for its graphics processing units.

These are not the only companies blaming China’s slowdown for lower demand. Apple had recently cut its forecast and blamed China’s slower demand for iPhones.

“(Caterpillar and Nvidia) highlight that, across a wide spectrum of businesses, China’s faltering economy is also having an impact on the US,” Tobin Gorey, a strategist at the Commonwealth Bank of Australia, said in a note.

It should be reported here that Caterpillar generates 59 percent of its sales from outside of the U.S. and about 25 percent of its revenue from the Asia Pacific region, according to figures from Goldman Sachs last year.

The Global Pain-

As per experts, the slow growth in China has been made worse by the trade war between the two largest economies of the world. And the trade war is affecting the American companies hard. They also add that the trade war “highlights a very fundamental truth about US-China relations.”

“The two are unavoidably symbiotic. Both are huge influences on the world economy. The pair thus cannot separate themselves,” he said. “And the economic health of one correlates positively with the other. So if one inflicts pain on the other, they both eventually feel it too.”

In December, the U.S. President Trump and his Chinese counterpart Xi Jinping agreed on a halt for further tariff increase for a window of 90 days. And in those 90 days, the two countries were supposed to negotiate a trade deal.

Margaret Yang, the market analyst at CMC Markets, said the reports from Nvidia and Caterpillar shows the grimmer picture of the market. And more than 100 companies in the S&P 500 companies list will be reporting their earning very soon.

“The trade and growth uncertainties surrounding markets over the past few months have started to materialize, and Trump’s radical trade policy has resulted in an adverse economic impact to even the American companies,” Yang said in a note.

Goldman Sachs on Friday has warned its clients of some companies like Broadcom, Micron Technology, Qualcomm, Qorvo, Skyworks Solutions and Wynn Resort along with Nvidia.

Last week China had reported that it had a growth of 6.6 percent in 2018 and it is the slowest growth rate since 1990. As per J.P. Morgan, the slower growth also will continue in 2019.

Haibin Zhu, J.P. Morgan’s chief China economist and head of China equity strategy, said in the bank’s report that the uncertainties persist on the outcome of the on-going trade negotiations between the United States and China and the conflict may aggravate further.

Zhu, who warned that the trade war could even transition to “non-tariff actions,” sounded very negative on the future of U.S. – China relations.

“In the long term, China and the US are unlikely to regain their past relationship. The negative impact on trade, business incentives, and the acceleration in global supply chain relocation could be postponed due to the temporary truce, but are unlikely to disappear,” he said.

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