Finance

When China’s leaders set an economic-growth target of “around” 5% for this year, the goal was universally described as ambitious. Now the country looks increasingly likely to meet it. Several foreign banks, including Citigroup, Goldman Sachs and Morgan Stanley, have recently raised their forecasts. Figures released on April 16th showed the economy grew by 5.3% in the first quarter, compared with a year earlier—quicker than expected and faster than the target requires.How is this happening? Countries at China’s stage of development often shift towards services. But China’s leaders have a soft spot for “hard” output. Xi Jinping, the country’s ruler, sees manufacturing as a source of both prosperity and security. He covets what officials call a “complete” industrial chain that would free China from reliance on foreign powers for vital technological inputs. To that end, his latest five-year plan aims to stop the steady decline in manufacturing’s share of GDP.Chart: The EconomistThe first three months of this year were consistent with that long-term goal. Manufacturing output grew by 6.7% compared with a year ago, faster than the overall economy. High-tech manufacturing fared even better, expanding by 7.5%. China’s leaders have talked a lot about the need to cultivate “new quality productive forces”, buzzwords that appeared in the monthly press release from the National Bureau of Statistics for the first time, even if the statisticians did not elaborate on how these forces could be measured.China is determined to wean itself off foreign suppliers. Yet the early months of this year highlighted a different kind of dependency: reliance on foreign buyers. China’s volume of exports grew by 14% in the first quarter compared with a year earlier, according to Zhiwei Zhang of Pinpoint Asset Management. Falling prices and a competitive currency have helped. According to America’s Bureau of Labour Statistics, the price of goods from China fell by 2.9% year-on-year in the first quarter. That is the third-steepest drop on record.Some analysts worry that China cannot rely on strong exports for long without provoking a protectionist backlash from its trading partners. Olaf Scholz, chancellor of Germany, raised fears about Chinese overcapacity when he met Mr Xi in Beijing on April 16th. Europe’s largest economy used to benefit from China’s economic progress. It sold sophisticated industrial goods to China, even as China’s manufacturers conquered lower-end markets around the world. Now the two countries have become rivals in many industries Germany holds dear, including chemicals, machinery and, of course, cars.China’s reliance on markets abroad reflects some enduring weaknesses at home. Retail sales were surprisingly poor in March. Consumer confidence remains low. And the property market’s misery continues. The price of new flats in 70 of China’s biggest cities fell by 2.2% on average in March compared with a year earlier, the steepest drop since 2015, according to Reuters, a news agency. Sales of newly built residential housing fell by over a fifth.The slump in China’s property market has contributed to falling prices in many related parts of the economy, such as building materials and housing appliances. That has deepened deflation’s grip on the economy. Factory-gate prices have now fallen for 18 months in a row. Consumer price inflation, after a brief uptick during the lunar new year holiday in February, remained near zero in March. Declining prices are, of course, a double-edged sword, as Ting Lu of Nomura, a bank, has pointed out. They have increased China’s competitiveness abroad, which is one reason why the country’s exports have been surprisingly strong. But if deflation persists it could erode revenues, making debts harder to bear. It might also force companies to cut wages, which will do nothing to restore household morale or spending.For all the paranoia of China’s leaders, they seem worryingly complacent about the danger of deflation. Perhaps they view it as a blip, which should not distract them from long-term aims to fortify China against shifts in the global balance of power—what Mr Xi calls “changes unseen in a century”. Falling prices can, though, turn a passing downturn into a protracted slump. This week’s figures showed that China’s GDP deflator, a broad measure of prices, has fallen for four quarters in a row. That has not happened since 1999. Or to put it in terms Mr Xi might appreciate, it is a change unseen this century. ■ More

Morgan Stanley on Tuesday posted results that topped analysts’ estimates for profit and revenue as wealth management, trading and investment banking exceeded expectations.
The bank said first quarter profit rose 14% from a year earlier to $3.41 billion, or $2.02 a share, helped by rising results at each of its three main divisions. Revenue rose 4% to $15.14 billion.
Shares of the bank jumped 3.6% in premarket trading.

Morgan Stanley on Tuesday posted results that topped analysts’ estimates for profit and revenue as wealth management, trading and investment banking exceeded expectations.Here’s what the company reported:

Earnings: $2.02 a share, vs. $1.66 expected, according to LSEG
Revenue: $15.14 billion, vs. expected $14.41 billion

The bank said first-quarter profit rose 14% from a year earlier to $3.41 billion, or $2.02 a share, helped by rising results at each of its three main divisions. Revenue climbed 4% to $15.14 billion.

Shares of the bank jumped 3.6% in premarket trading.
Wealth management revenue rose 4.9% to $6.88 billion, topping the StreetAccount estimate by $230 million, as rising markets helped boost fee revenue and offset a decline in interest income.
Equities trading revenue rose 4.1% to $2.84 billion, $160 million more than expected, fueled by derivatives volumes. Fixed income trading revenue slipped 3.5% to $2.49 billion, but that still topped expectations by $120 million.
Investment banking revenue jumped 16% to $1.45 billion, edging out the $1.40 billion estimate, as increases in debt and equity issuance offset lower fees from acquisitions.
The firm’s smallest division, investment management, was the only major business to underperform expectations. While revenue climbed 6.8% to $1.38 billion, it was below the $1.43 billion StreetAccount estimate.

CEO Ted Pick’s tenure had kicked off on a rocky note, as high interest rates have incentivized the bank’s wealth management customers to move cash into higher-yielding securities. The bank’s shares have declined nearly 7% this year before Tuesday.
But like rivals including Goldman Sachs and JPMorgan Chase, Morgan Stanley was helped by strong trading and investment banking results in the quarter.
Last week, JPMorgan, Wells Fargo and Citigroup each topped expectations for revenue and profit, a streak continued by Goldman on Monday and Bank of America on Tuesday.
Analysts are likely to question Pick about reports that multiple U.S. regulators are investigating Morgan Stanley for potential shortfalls in how it screens clients for its wealth management division.
This story is developing. Please check back for updates. More

Bank of America on Tuesday reported first-quarter earnings that topped analysts’ estimates for profit and revenue on better-than-expected interest income and investment banking.
The bank said profit fell 18% to $6.67 billion, or 76 cents a share; excluding a $700 million FDIC assessment, profit was 83 cents a share.
Revenue slipped 1.6% to $25.98 billion as net interest income declined from a year earlier.

Bank of America on Tuesday reported first-quarter earnings that topped analysts’ estimates for profit and revenue on better-than-expected interest income and investment banking.
Here’s what the company reported:

Earnings: 83 cents a share adjusted, vs. 76 cents expected, according to LSEG
Revenue: $25.98 billion, vs. expected $25.46 billion

The bank said profit fell 18% to $6.67 billion, or 76 cents a share; excluding a $700 million FDIC assessment, profit was 83 cents a share. Revenue slipped 1.6% to $25.98 billion as net interest income declined from a year earlier.
Shares of the bank climbed 2.2% in premarket trading.
Net interest income, or the difference between what the company earns from loans and investments and what it pays customers for their deposits, was $14.19 billion, topping the $13.93 billion StreetAccount estimate.
The bank’s interest income was a “slight positive surprise,” though it’s unclear if this means the metric will improve earlier than expected, Wells Fargo analyst Mike Mayo said Tuesday in a research note.
Analysts will likely ask Bank of America management for more guidance on its NII, which has been declining in recent quarters as funding costs have climbed along with the rise in interest rates.

Investment banking revenue jumped 35% to $1.57 billion, exceeding the $1.36 billion estimate and following a similar rise at rivals including Goldman Sachs and JPMorgan Chase.
It’s also considerably higher than the guidance given by Bank of America CFO Alastair Borthwick, who told analysts last month to expect investment banking revenue to rise by 10% to 15% from a year earlier.
The bank’s trading operations also edged out expectations. Fixed income revenue fell 3.6% to $3.31 billion, slightly beating the $3.24 billion estimate, and equities revenue rose 15% to $1.87 billion, compared with the $1.84 billion estimate.
This story is developing. Please check back for updates. More

Goldman Sachs on Monday posted first-quarter profit and revenue that topped analysts’ expectations, fueled by a surge in trading and investment banking revenue.
The bank said profit jumped 28% to $4.13 billion, or $11.58 per share, from the year earlier period, thanks to a rebound in capital markets activities
Goldman shares climbed more than 4% in premarket trading.

Goldman Sachs on Monday posted first-quarter profit and revenue that topped analysts’ expectations, fueled by a surge in trading and investment banking revenue.
Here’s what the company reported:

Earnings: $11.58 per share, vs. $8.56 expected, according to LSEG
Revenue: $14.21 billion, vs. $12.92 billion expected

The bank said profit jumped 28% to $4.13 billion, or $11.58 per share, from the year earlier period, thanks to a rebound in capital markets activities. Revenue rose 16% to $14.21 billion, topping analysts’ estimate by more than $1 billion.
Goldman shares climbed more than 4% in premarket trading.
Fixed income trading revenue rose 10% to $4.32 billion, topping the StreetAccount estimate by $680 million, thanks to a jump in mortgage, foreign exchange and credit trading and financing. Equities trading rose 10% to $3.31 billion, about $300 million more than expected, on derivatives activity.
Investment banking fees surged 32% to $2.08 billion, topping the estimate by roughly $300 million, driven by higher debt and equity underwriting.
Goldman Sachs CEO David Solomon has taken his lumps in the past year, but a turnaround appears to be underway as memories of the moribund capital markets and missteps tied to Solomon’s ill-fated push into retail banking begin to fade.

Like rivals JPMorgan Chase and Citigroup, which each posted better-than-expected trading and investment banking results for the first quarter, Goldman took advantage of improving conditions since the start of the year.
Unlike more diversified rivals, Goldman gets most of its revenue from Wall Street activities. That can lead to outsized returns during boom times and underperformance when markets don’t cooperate.
After pivoting away from retail banking, Goldman’s new emphasis for growth has centered on its asset and wealth management division.
But that was the only Goldman business that didn’t top expectations for the quarter: Revenue in the business rose 18% to $3.79 billion, essentially matching the StreetAccount estimate, on higher private banking and lending revenue, rising private equity stakes and climbing management fees.
Revenue in the bank’s smallest division, Platform Solutions, jumped 24% to $698 million, topping estimates by about $120 million, fueled by a rise in credit card and deposit balances.
Solomon may field questions Monday about the latest departures of senior managers, including his global treasurer Philip Berlinski and Beth Hammack, co-head of the bank’s global financing group.
On Friday, JPMorgan, Citigroup and Wells Fargo each posted quarterly results that topped estimates.
This story is developing. Please check back for updates.

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Freetrade reported adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of £100,000 ($124,570) in the first quarter of 2024.
The development is welcome news for Freetrade’s crowdfunding investors, who’ve been looking for an update on the company’s move toward profitability.
Freetrade saw its valuation reduced by 65% to £225 million ($280.3 million) from £650 million in 2023, blaming a “different market environment” plagued by higher interest rates and inflation.

The Freetrade logo on a smartphone screen.
Rafael Henrique | Sopa Images | Lightrocket | Getty Images

British stock trading app Freetrade hit eked out breakeven earlier this year, the company told CNBC, marking its first-ever move into the black after incurring full-year losses in 2023.
Freetrade reported adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of £100,000 ($124,863) in the first quarter of 2024, according to unaudited financial statements shared with CNBC.

Preliminary revenue hit £6.7 million in the quarter.
Freetrade still generated a loss of £8.3 million in 2023, down from the £28.8 million loss it racked up the year before. Revenues climbed to £21.6 million last year, up 45% from 2022.
“We defied difficult market conditions and delivered healthy growth in 2023 while dramatically reducing losses” in 2022, said Adam Dodds, CEO and founder of Freetrade.

Equity crowdfunders rejoice

The development will be welcome news for Freetrade’s crowdfunding investors, who’ve been looking for an update on the company’s move toward profitability after a tough financial period.
Freetrade saw its valuation reduced by 65% to £225 million ($280.3 million) from £650 million in 2023 in its latest equity crowdfunding round on Crowdcube, with the company blaming a “different market environment” plagued by higher interest rates and inflation.

Net inflows totalled £130 million in the first quarter, too, as retail investor activity grew in response to resurgent markets last year. Assets under administration also reached £1.8 billion.
“Importantly for our crowdfunding investors, we laid out a clear path towards breakeven during our last fundraise,” Dodds said.
“As we look ahead to the rest of 2024, we’ve got major product developments that are going to support our next phase of growth with preparations being made to roll out our web platform.”
Equity markets saw serious drops in 2022 as a result of macroeconomic uncertainty and higher interest rates stoked by Russia’s full-fledged invasion of Ukraine, which triggered a risk-off trade around the world.

Britain’s answer to Robinhood

Freetrade is a competitor to Robinhood, the U.S. stock trading platform. Robinhood recently relaunched in the U.K. in March, in its third attempt to crack the European market.
Freetrade’s Dodds said he’s undeterred by Robinhood’s move back into the U.K., telling CNBC via email that “more choice and competition are good for retail customers.”
“Ultimately, there will be multiple winners in the UK market, offering the full range of tax-wrappers and features that the local retail investor expects,” he added.
Freetrade said its first-quarter performance was driven by higher trading volumes as well as higher foreign exchange income.
Since October 2023, Freetrade said it has seen a marked increase in retail investor participation amid speculation over when and how often the U.S. Federal Reserve and other central banks will cut rates this year.
A rally in crypto prices also helped Freetrade in the first quarter. Though the platform doesn’t offer crypto trading, Freetrade experienced increased retail investor activity in crypto-correlated stocks like Coinbase, MicroStrategy, and Marathon Digital. More

Larry Swedroe, who is considered one of the market’s most esteemed researchers, thinks Warren Buffett’s investment style doesn’t work well anymore.
He cites the number of professional Wall Street firms and hedge funds now participating in the market.

“Warren Buffett was generally considered the greatest stock picker of all time. And, what we have learned in the academic research is Warren Buffett really was not a great stock picker at all,” Swedroe told CNBC’s “ETF Edge” this week. “What Warren Buffett’s ‘secret sauce’ was, he figured out 50, 60 years before all the academics what these factors were that allowed you to earn excess returns.”
Swedroe indicated index funds can help investors trying to mimic Buffett’s performance.
“[Investor] Cliff Asness and the team at AQR did some great research and showed that what you accounted for the leverage Buffett applied through his reinsurance company. If you bought an index of stocks that had these same characteristics, you would have matched Buffett’s returns virtually,” said Swedroe. “Now today, every investor can own through ETFs or mutual funds the same types of stocks that Buffett has bought through companies that apply this academic research — companies like Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect and a few others.”
Swedroe is the author and co-author of almost 20 books — including “Enrich Your Future – The Keys to Successful Investing” released in February.
In an email to CNBC, he called it “a collection of stories and analogies … that help investors understand how markets really work, how prices are set, why it is so hard to persistently outperform through active management [stock picking and market timing,] and how human nature leads us to make investment mistakes [and how to avoid them].”

During his “ETF Edge” interview,’ Swedroe added investors can also benefit from momentum trading. He contends market timing and stock picking often don’t factor into long-term success.
“Momentum certainly is a factor that has worked over the long term, although it does go through some long periods like everything else will underperform. But momentum does work,” said Swedroe, who’s also the head of economic and financial research at Buckingham Wealth Partners. “It’s purely systematic. Computers can run it, you don’t need to pay big fees and you can access it with cheap momentum.”
In his latest book, Swedroe likens the stock market to sports betting and active managers to bookies. He suggests more investors “play” —or invest — the more likely they are to underperform.
“Wall Street needs you to trade a lot so they can make a lot of money on bid offer spreads. Active managers make more money by getting you to believe that they’re likely to outperform,” said Swedroe. “It’s virtually impossible mathematically for that to happen because they just have higher expenses including higher taxes. They just need you to play, and so, you know, that’s why they tell you active management’s a winner’s game.”

‘Dumb retail money’

He sees active management getting more efficient in pulling in emotional investors – which he calls “dumb retail money.”
“[Emotional investors] do so poorly [that] they underperform the very funds they invest in because they get stock picking wrong and market timing wrong,” Swedroe said.

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The Inflation Reduction Act turned a $7,500 tax credit for new electric vehicles into an upfront discount for buyers via an advance payment of their tax break.
About 90% of qualifying consumers buying a new EV have opted to get their tax break as an advance payment, a Treasury Department official said. 
Advance payments also allow consumers to get their full EV credit regardless of tax liability.

Maskot | Maskot | Getty Images

The bulk of Americans buying qualifying new electric vehicles are opting to receive an associated tax credit upfront from the car dealer instead of waiting until tax season, according to new Treasury Department data.  
About 90% of consumers who qualify for a “new clean vehicle” tax credit — worth up to $7,500 — have requested their tax break be issued as an advance payment, according to a Treasury Department official speaking on background.

“It means that it’s popular,” Ingrid Malmgren, policy director at nonprofit EV advocacy group Plug In America, said of the data.
Advance payments are a new, optional financial mechanism created by the Inflation Reduction Act, which President Joe Biden signed in 2022. They allow dealers to give an upfront discount to qualifying buyers, delivered as a partial EV payment, down payment or cash payment to consumers. The IRS then reimburses the dealer.
Not everyone will necessarily qualify for the full $7,500, depending on factors like the type of car that’s purchased.
The advance-payment provision kicked in Jan. 1.
Previously, all EV buyers had to wait until tax season the year after their purchase to claim related tax credits, meaning they may wait several months or longer.

Because the clean vehicle credit is nonrefundable, households with low annual tax burdens may not be able to claim the tax break’s full value on their returns. But that’s not the case with advance payments: Eligible buyers get their full value regardless of tax liability.
Advance payments are also available for purchases of used EVs. The previously owned clean vehicle credit is worth up to $4,000.
The advance payments can help with affordability, Malmgren said. For example, the upfront cash means households may not need to source funds from elsewhere to cover a down payment, she said. It can also reduce the cost of monthly car payments and overall interest charges, she added.
Car dealers have filed about 100,000 time-of-sale reports for new and used EVs to the IRS since Jan. 1, which signals that a consumer qualifies for a tax break, according to the Treasury official.
The Treasury has issued more than $580 million in advance payments since Jan. 1, the official said.
“Demand is high four months into implementation of this new provision with American consumers saving more than half a billion dollars,” Haris Talwar, a Treasury spokesperson, said in a written statement.

Caveats to advance payments

Of course, there are some caveats to the advance payments. For one, not all car dealers are participating.
More than 13,000 dealers have so far registered with the IRS Energy Credits Online portal to facilitate these financial transfers to consumers. That number is up from more than 11,000 in early February.
For context, there were 16,839 franchised retail car dealers in the U.S. during the first half of 2023, according to the National Automobile Dealers Association. There are also roughly 60,000 independent car dealers, though they largely sell used cars, according to a 2021 Cox Automotive estimate. Not all these franchises or independent dealers necessarily sell EVs.
More from Personal Finance:3 signs it’s time to refinance your mortgageWhat Biden’s new student loan forgiveness plan means for your taxesWhy the Fed is in no rush to cut interest rates in 2024
Additionally, not all EVs or consumers will qualify for a tax break.
The Inflation Reduction Act has manufacturing requirements for new EVs — meant to encourage more domestic production — that temporarily limit the models that qualify for a full or partial tax credit.
There are 36 new EV models currently available for a tax break in 2024, according to U.S. Energy Department data as of March 18.
Manufacturers of those models include Acura, Audi, Cadillac, Chevrolet, Chrysler, Ford, Honda, Jeep, Lincoln, Nissan, Rivian, Tesla and Volkswagen. Some models qualify for half the tax credit — $3,750 — instead of the full $7,500.
Cars and buyers must meet other requirements, too, which include income limits for households and thresholds on EV sticker prices.
Buyers need to sign an affidavit at car dealerships affirming their annual income doesn’t exceed certain eligibility thresholds. Making an error would generally require consumers to repay the tax break to the IRS.

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The bank said first-quarter profit rose 6% to $13.42 billion, or $4.44 per share, from a year earlier, boosted by its takeover last year of First Republic during the regional banking crisis.
But in guidance for 2024, the bank said it expected net interest income of around $90 billion, which is essentially unchanged from previous wording.
That appeared to disappoint investors, who expected JPMorgan to raise its guidance by $2 billion to $3 billion for the year; shares of JPM slipped 3.5% in premarket trading.

Jamie Dimon, President and CEO of JPMorgan Chase, speaking on CNBC’s “Squawk Box” at the World Economic Forum Annual Meeting in Davos, Switzerland, on Jan. 17, 2024.
Adam Galici | CNBC

JPMorgan Chase on Friday posted profit and revenue that topped Wall Street estimates as credit costs and trading revenue came in better than expected.
Here’s what the company reported compared with estimates from analysts surveyed by LSEG, formerly known as Refinitiv:

Earnings: $4.44 per share, vs. $4.11 expected
Revenue: $42.55 billion, vs. $41.85 billion expected

The bank said first-quarter profit rose 6% to $13.42 billion, or $4.44 per share, from a year earlier, boosted by its takeover of First Republic during the regional banking crisis last year. Per-share earnings would’ve been 19 cents higher excluding a $725 million boost to the FDIC’s special assessment to cover the costs tied to last year’s bank failures.
Revenue climbed 8% to $42.55 billion as the bank generated more interest income thanks to higher rates and larger loan balances.
JPMorgan posted a $1.88 billion provision for credit losses in the quarter, far below the $2.7 billion expected by analysts. The provision was 17% smaller than a year ago, as the firm released some reserves for loan losses, rather than building them as it did a year earlier.
While trading revenue overall was down 5% from a year earlier, fixed income and equities results topped analysts’ expectations by more than $100 million each, coming in at $5.3 billion and $2.7 billion, respectively.
But in guidance for 2024, the bank said it expected net interest income of around $90 billion, which is essentially unchanged from previous wording.

That appeared to disappoint investors, who expected JPMorgan to raise its guidance by $2 billion to $3 billion for the year; shares of JPM slipped 3.5% in premarket trading.
JPMorgan CEO Jamie Dimon called his company’s results “strong” across consumer and institutional areas, helped by a still-buoyant U.S. economy, though he struck a note of caution about the future.
“Many economic indicators continue to be favorable,” Dimon said. “However, looking ahead, we remain alert to a number of significant uncertain forces” including overseas conflict and inflationary pressures.
Though the biggest U.S. bank by assets has navigated the rate environment well since the Federal Reserve began raising rates two years ago, smaller peers have seen their profits squeezed.
The industry has been forced to pay up for deposits as customers shift cash into higher-yielding instruments, squeezing margins. Concern is also mounting over rising losses from commercial loans, especially on office buildings and multifamily dwellings, and higher defaults on credit cards.
Still, large banks are expected to outperform smaller ones this quarter.
Shares of JPMorgan have jumped 15% this year, outperforming the 3.9% gain of the KBW Bank Index.
Wells Fargo and Citigroup also report quarterly results Friday, while Goldman Sachs, Bank of America and Morgan Stanley report next week.  
This story is developing. Please check back for updates.

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