Macro Wrap – GE’s Take on Global Economy

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GE reported better than expected earnings and revenue this morning, and the stock is trading up about 3% in the pre-market.  Given GE’s global reach, I parsed through the press release to gauge the strength of various regions and sectors.

First, Chinese strength in the 4th quarter continues to be a theme.  Chinese authorities have apparently ramped up spending more than I expected, continuing to focus on fixed investment projects to drive growth, rather than shifting to a rebalancing towards consumer spending.

GE CEO Jeff Immelt commented, “The outlook for developed markets remains uncertain, but we are seeing growth in China and the resource rich countries.”  Going through the business segments, oil and gas and aviation had the strongest revenue growth sequentially, while the wind turbine and transportation segments were weak.

The industrial sector has been one of the strongest performers in the U.S. market in the past 2 months.  Here is the comparison of XLI (the industrials ETF) vs. SPY over the past 6 months:

 

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XLI (in red) started its run of outperformance around the turn of the market in mid-November, and has remained a leader ever since.  A lot hinges on the continuation of the Chinese rebound, so industrials traders should be watching Chinese economic data and commentary from Chinese policymakers especially closely.

Markets overnight:

  • Asia rallied strongly after Chinese GDP data came in at 7.9% growth, better than the 7.8% expected (and catching up to the U.S. rally).  Japan was up more than 2% to lead, but most markets up more than 1%.  
  • Europe opened green, but now trading red, though essentially flat.  SPX futures down 0.1% in only a 3 point range overnight.
  • Dollar and Treasuries slightly higher overnight, while commodities are mixed.
  • INTC trading 4% lower, GE 3% higher, and MS 3% higher after earnings.
  • UMich Confidence number released at 9:55 am.  No other data releases.
  • Jan Expiry the largest single expiry each year by open interest is today.