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  • Weekly global market focus
  • US/China trade talks plod along after high-level talks on Saturday
  • Trump auto tariff decision expected soon
  • Q3 earnings season is nearly over with better-than-expected results


Weekly global market focus 
— The U.S. markets this week will focus on (1) whether U.S. and Chinese negotiators can soon close the deal on a phase-one trade agreement, (2) the last week for Fedspeak ahead of next week’s Thanksgiving holiday and the quiet period ahead of the Dec 10-11 FOMC meeting with four Fed officials speaking this week, (3) Wednesday’s release of the Oct 29-30 FOMC meeting minutes where the Fed cut rates for the third time this year but signaled that the cut would likely be the last for the cycle, and (4) the Treasury’s sale of $12 billion in 10-year TIPS on Thursday.

This week’s U.S. economic calendar is relatively light with several housing reports and Friday’s final-Oct U.S. consumer sentiment index (expected unrevised at 95.7).  The Q3 earnings season is nearly over with only 16 of the S&P 500 companies reporting this week.

Washington politics will be in the news this week.  Congress this week is expected to approve a new continuing resolution lasting until December 20, thus averting a U.S. government shutdown this Friday after the current CR expires on Thursday (Nov 21).  The House Intelligence Committee will continue its impeachment hearings this week with EU Ambassador Gordon Sondland being a high-profile witness on Wednesday.

Also, the House Oversight Committee could obtain President Trump’s tax returns from Mazars as soon as Wednesday under last week’s ruling by the D.C. Court of Appeals, unless the U.S. Supreme Court takes up President Trump’s appeal and issues a stay barring the release of the tax returns while it considers the case.

In Europe, the focus will be on Thursday’s ECB summary of its Oct 23-24 meeting and Friday’s first major speech by ECB President Christine Lagarde.  The consensus is for Friday’s Nov Markit Eurozone PMI reports to show a mild improvement with the manufacturing PMI expected +0.5 to 46.4 (after Oct’ s +0.2 to 45.9) and the services PMI up +0.2 to 52.4 (after Oct’s +0.6 to 52.2).

The markets continue to closely watch the UK campaign ahead of the Dec 12 general election.  Conservative Party leader Johnson and Labour leader Jeremy Corbyn will hold a head-to-head debate on Tuesday.  The latest polls have Conservatives with 44% of the vote, Labour with 28%, Liberal Democrats with 14%, and Brexit Party with 6%.  The betting odds for the Conservative Party to win a majority of seats in Parliament remain high at a 65% probability (6/11), according to oddschecker.com.

In Asia, the focus is on the US/Chinese trade talks and the Hong Kong protests, which escalated over the weekend with mass arrests and a threat by police to use live bullets.  Japan’s Oct national CPI report on Thursday night is expected to show a slight rise to +0.3% y/y from Sep’s +0.2% but remain far below target.

US/China trade talks plod along after high-level talks on Saturday — Top-level negotiators had a “constructive” phone call on Saturday, according to the Chinese Commerce Ministry.  That call included USTR Lighthizer, Treasury Secretary Mnuchin, and Chinese Vice Premier Liu.  The call was held at the request of the U.S.

The markets remain optimistic that a US/Chinese trade deal will get done.  White House economic advisor Kudlow last Thursday said that the talks are down to “short strokes” although he said a deal is not done yet.  There were reports last week that China is balking at an American demand for specified targets for ag purchases to be written into the agreement.  President Trump says that China has agreed to ramp up its U.S. ag purchases to $50 billion from the $20 billion level seen in 2017, the last full year before the tariff war began.  Another unresolved issue is China’s demand for at least a partial rollback of existing tariffs.

Trump auto tariff decision expected soon — President Trump has yet to announce whether he will impose his threatened tariff on autos imported into the U.S. despite this past Sunday’s self-imposed deadline.  The markets were encouraged by last week’s media reports that Mr. Trump has decided to delay a decision on those auto tariffs for another 6 months.  Bloomberg reported last Tuesday that the Trump administration is pleased that European automakers such as Volkswagen and Daimler have agreed to shift global production to American suppliers as a means to stave off the tariff.  Europe has promised to slap retaliatory tariffs on $39 billion of U.S. goods if Mr. Trump imposes a tariff on European autos.

Q3 earnings season is nearly over with better-than-expected results — The Q3 earnings season is nearly over with only 16 of the S&P 500 companies reporting this week.  Notable reports this week include Home Depot, Kohl’s and TJX on Tuesday; Lowe’s, Target, and L Brands on Wednesday; and Macy’s, Nordstrom, Ross Stores, and GAP on Thursday.

The consensus is for Q3 SPX earnings growth of -0.4% y/y (+2.2% ex-energy), according to Refinitiv.  Looking ahead, the consensus is for SPX earnings growth of +0.2% in Q4, +6.5% in Q1-2020, +7.1% in Q2-2020, and +10.1% in Q3-2020.  On a calendar year basis, earnings growth in 2019 is expected to slump to +1.2% from 2018’s stellar pace of +22.7%, but then improve to +9.9% in 2020.

Q3 earnings have been better than expected.  Of the 461 companies in the S&P 500 that have reported, 74.6% have beaten the consensus, above the long-term average of 64.8% and the 4-quarter average of 74.1%, according to Refinitiv.  However, only 58.0% of SPX companies beat the revenue consensus, below the long-term average of 60.2% and the 4-quarter average of 58.8%.

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