Before the bell: 5% growth as a country? Yawn

A 5% growth spurt in China fails to move Chinese markets today, while Belgium’s National Bank announces a massive loss.

If Belgium were to announce a 5% growth in its gross domestic product (GDP) tomorrow, both investors and politicians would be over the moon. A strong economy boosts corporate profits and tax revenues. However, the lack of enthusiasm among Chinese investors over the country’s 5% GDP growth in 2024 stems from elsewhere. With Trump set to take office on Monday, expectations are mounting that additional trade sanctions will further hurt China’s GDP in 2025. Stocks like Alibaba barely moved in Chinese trading. Similarly, yesterday was a quiet day in the U.S., with the S&P 500 losing 0.2%.

There’s more excitement on the corporate front today. Elia lost a subsidy contract for a high-voltage line in New York. Investors will soon react to a deal Barco secured with Regal Cineworld to install 4,000 laser projectors by 2030. Meanwhile, Xior announced a capital increase to fund investments in Poland and repay debt. IBA has lost its CFO after nine years, with no immediate replacement in sight. Today’s agenda includes China’s GDP figures, U.S. industrial production data, and updates on the American housing market.

Record loss of 3.7 billion euro

A loss of 3.7 billion euro—this marks the largest loss ever for Belgium’s National Bank, following last year’s loss of 3.37 billion euro and the 580 million euro loss the year before. This brings the bank’s cumulative losses over the past three years to more than 7.6 billion euro. The reason? During the COVID-19 crisis, the bank purchased massive amounts of debt securities at zero or even negative interest rates. Rising interest rates have now significantly devalued this debt. Simultaneously, the bank must pay interest today at rates far higher than what it earns on the older bonds. While financial reserves were set aside as a buffer, these have now been completely wiped out, leaving the bank with a negative equity position. Dividends for shareholders, including the government, will be scrapped—a blow for the coalition negotiations.

A mega-merger in the making?

If there’s one realistic expectation under President Trump, it’s that we’ll see more mergers in the next four years than during Biden’s tenure. Several major mergers were blocked by the previous administration, including one between handbag makers Capri Holdings and Tapestry. According to Bloomberg, Rio Tinto and Glencore are now reportedly in talks about creating the largest-ever merger in the mining sector. The combined entity would have a market value of 158 billion dollar, dwarfing rival BHP Group, which has a market capitalization of 126 billion dollar. Our take? When merger talks leak at an early stage, they often fall apart. Given the companies’ differing views on fossil fuels and other matters, a merger would surprise us, especially since previous talks between the two in 2014 also failed.

Did you know…

A central bank can operate with a negative equity position? While it’s not ideal as it may undermine confidence in the institution, Governor Pierre Wunsch insists the National Bank of Belgium doesn’t require recapitalization. The bank expects to return to profitability by the end of this decade.

This article was translated from Dutch and was originally published on Spaarvarkens.be.