China might finally be healing | Chipmaker ASML reported underwhelming results despite the AI buzz |
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Today's big stories

  1. China’s economy grew faster than expected last quarter, but it’s not in the clear yet
  2. With 16% returns, these investments are purring – Read Now
  3. Dutch chipmaker ASML reported underwhelming results, but its projections gave investors a reason to stay hopeful

Potluck

Potluck

What’s going on here?

China’s economy finally came to the table with better-than-expected stats, but investors weren’t tempted to dig in.

What does this mean?

China’s been stuck in a rut ever since the pandemic: the country’s money-making exports are being blanked by the rest of the world, the housing market needs more than a lick of paint, and youth unemployment is scarily high. But at long last, the world’s second-biggest economy may be making progress. China’s economy ticked up 4.9% last quarter from the same time last year, beating analysts’ prediction of 4.5%. And it pulled off a 1.3% uptick last month alone, mainly thanks to revitalized shoppers hitting the stores and giving retail sales their biggest bump since May.

Why should I care?

For markets: One bad apple can ruin the bunch.

Chinese stocks barely budged after the news, though, indicating that investors are still wary of the country’s ailments. The long-suffering property sector is the biggest concern: the debt-laden sector holds most of Chinese families’ wealth, deciding their levels of confidence and spending habits. It checks out, then, that sales of stuff like furniture, building supplies, and home gadgets are pretty flat – plus major developers are still teetering on the brink of debt defaults. And while the government has tried its best to support the struggling sector, key indicators – property investment, home sales, and construction data – are still slipping downward.

The bigger picture: The big reveal.

China’s government isn’t the only one funneling cash into its economy right now. Countries around the world are unveiling major building projects, enhancing public services, and heightening military budgets. Problem is, while this type of investment tends to support the economy, it also pushes inflation – and in turn, interest rates – higher. That’s a downer for stocks and bonds, but a blessing for commodities.

You might also like: Macro and markets guide to China.

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Analyst Take

The Cat’s Out Of The Bag: With 16% Returns, These Bonds Are Among The Year’s Best

The Cat’s Out Of The Bag: With 16% Returns, These Bonds Are Among The Year’s Best
Photo of Reda Farran

Reda Farran, Analyst

Bond markets around the world are getting hammered by rising interest rates, but one debt instrument is still looking like the cat’s pajamas, delivering double-digit returns.

Catastrophe bonds (or “cat bonds” for short) have been, ahem, purring.

The Swiss Re Global Cat Bond Index is up 16% this year, outperforming the Bloomberg Global Aggregate Index (made up of investment-grade government and corporate bonds) by almost 20%.

That’s today’s Insight: here’s what you need to know about cat bonds – and how to invest.

Read or listen to the Insight here

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Keep ‘Em Keen

Keep ‘Em Keen

What’s going on here?

ASML reported underwhelming results on Wednesday, but the Dutch chipmaker knows just how to keep investors on side.

What does this mean?

You’d assume that chipmaker ASML is bathing in jacuzzis and drinking champagne for breakfast thanks to the hyped-up artificial intelligence trend. But despite supplying machines that underpin the tech, the chip industry as a whole is working through a slump. ASML’s future orders dropped by 40% last quarter from the one before, landing around €2.6 billion ($2.8 billion). And while the firm’s third-quarter revenue was higher than the same time last year, future projections – partly based on those pre-orders – matter far more. Bad luck, then: ASML forecast that next year’s revenue will be the same as this year’s, which is likely to let investors down.

Why should I care?

Zooming out: It’s not over yet.

That said, investors have plenty of reasons to stay hopeful. With most major economies battling inflation, hard-up consumers are saving their cash instead of splashing out on expensive gadgets. So in theory, economic recoveries over the next year or two should encourage pent-up shoppers to swipe their cards – and if new phones and laptops start flying off the shelves, chipmakers will make bank by selling their ordinary chips. That, at a time when demand for high-tech artificial intelligence chips could climb to the next level, too. None of that’s a guarantee, of course, but it’s probably enough to keep ASML investors hanging around for now.

For markets: Let’s visit the psychic’s lair.

Tech investors will get a glimpse of the future soon. US Big Tech companies are due to report their earnings next week, and artificial intelligence is sure to feature heavily on their agendas. Microsoft, for one, reports late next Wednesday, when it’ll spill the beans on its Copilot software. Excitement around artificial intelligence has recently settled into a steadier pace, but any promising updates could reignite the rush that started earlier this year.

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