China drops its growth target for the first time in 30 years and signals a looming crackdown on dissent in Hong Kong. Markets are falling in response, although they’re still likely to end the week up, on confidence that the worst of the hit from the pandemic is over. Nvidia (NASDAQ:NVDA) stock is in focus after reporting strong earnings after the bell on Thursday, while Alibaba (NYSE:BABA) is due to report before the open. But the drumbeat of job losses around the world continues, with IBM (NYSE:IBM), Nissan (OTC:NSANY) and – most probably – Hewlett Packard Enterprise (NYSE:HPE) flagging major job cuts.
1. China signals HK crackdown
China signalled an imminent crackdown on dissent in Hong Kong with a draft proposal for a new security law for Special Autonomous Region.
The move threatens to revive pro-democracy protests in the former U.K. colony, which had ebbed at the worst of the coronavirus pandemic but had started to pick up again in recent weeks.
It also threatens a further deterioration of relations with the U.S.: President Donald Trump promised retaliation if Hong Kong’s existing privileges were ended, while the U.S. Senate proposed a bill, with bipartisan backing, threatening sanctions on officials who implement any crackdown.
The Hang Seng stock index fell 5.6%, while mainland Chinese indices fell over 2% and the yuan weakened.
2. Beijing drops its growth target for 2020, hitting oil and metals prices
The second major development out of the annual National People’s Congress in Beijing was that the Communist Party dropped its official target for Gross Domestic Product growth this year, the first time it has done so in 30 years.
The shift in communication was taken as a warning that the economy will take longer than thought to recover from the coronavirus pandemic (around 100 million people are still locked down in China’s north-eastern regions after signs of a fresh wave of infections).
Industrial commodity prices – ripe for some profit-taking after a strong week – took the news particularly badly. U.S. crude futures fell 6.0% by 6:30 AM ET (1030) to $31.89 a barrel, while copper futures fell 2.2% to $2.38 a pound and nickel futures fell 1.7%.
3. Stocks set to open lower on Chinese news
U.S. stocks are set to open lower on the back of the news out of China, amid concern that Beijing has resigned itself to worsening relations with the U.S. and that last year’s trade war will return in a new and more potent form.
By 6:30 AM ET, the Dow Jones 30 Futures contract was down 78 points or 0.3%, while the S&P 500 futures contract was down 0.3% and the Nasdaq 100 contract was down 0.4%. All three indices are still on course to end the week with gains of between 2% and 3%, and to achieve their highest weekly close since early March.
4. Nvidia’s profit surges on demand for gaming, data-center chips; Alibaba’s earnings eyed
Among the stocks in focus on Friday will be chipmaker Nvidia, which handsomely beat expectations in its quarterly report after the closing bell on Thursday.
The company’s earnings per share more than doubled on the year to $1.88, as pandemic-related lockdowns led to strong sales of gaming and data-center chips.
The company has profited from two of the major trends triggered by the pandemic, as lockdowns have driven redirected entertainment spending and accelerated the growth of demand for Cloud-based services from businesses, especially online retailers.
Alibaba’s earnings before the opening Friday will also be parsed for similar trends.
5. More job cuts coming down the line
The pandemic’s effects on other parts of the economy continues to be felt, however, with announcements of job cuts seemingly accelerating across the world.
The Japanese news service Kyodo reported Friday that Nissan plans 20,000 job cuts to bring supply into line with long-term expected demand.
IBM meanwhile announced it, too, would make permanent job cuts – the first under new CEO Arvind Krishna. While it didn’t say how many of its 350,000-odd workforce would go, The Wall Street Journal said it would be “several thousand”.
Hewlett Packard Enterprise also announced a $1 billion program of cost cuts on Thursday. It isn’t clear whether the company will be permanently cutting jobs as a result.
U.K. aero engine maker Rolls Royce (LON:RR) had announced 9,000 planned cuts on Wednesday.