- Weekly global market focus
- Optimism rises for US/Chinese trade deal as China says there is a “consensus in principle”
- Deadline for U.S. tariff decision on EU autos approaches
- Q3 earnings season starts to tail off
Weekly global market focus — The U.S. markets this week will focus on (1) the status of the US/Chinese trade talks and whether there is an agreement by the target date of mid-November, (2) Fedspeak with 11 appearances by Fed officials this week as the Fed tries to convince the markets that it is done easing, (3) Q3 earnings season with 89 of the S&P 500 companies reporting this week, (4) the Treasury’s sale of $84 billion of 3-year, 10-year and 30-year securities, and (5) Washington politics including the countdown to a possible U.S. government shutdown when the current continuing resolution expires on Nov 21.
The European markets this week will focus on comments today by newly-minted ECB President Christine Lagarde in Berlin as she sets the tone for ECB policy under her guard. On Thursday, the European Commission will release updated economic forecasts and the ECB will release its monthly economic bulletin. The markets will reassess the possibility of a German recession after the release of German Sep factory orders on Wednesday (expected +0.1% m/m and -6.3% y/y) and Sep industrial production on Thursday (expected -0.3% m/m and -4.3% y/y).
The UK Parliament will dissolve on Wednesday ahead of the Dec 12 general election. The betting odds are 85% in favor of Conservatives winning the most seats at the December election (according to oddschecker.com), which would boost Prime Minister Johnson’s chances of getting his Brexit deal approved before the Brexit deadline of Jan 31. The Bank of England at its meeting on Thursday is expected to leave its policy unchanged as it monitors the economy amidst the Brexit uncertainty.
The Asian markets this week will focus on the odds of a US/Chinese trade deal within the next few weeks. China tonight reports the Oct Caixin services PMI (expected +0.2 to 51.5 after Sep’s -0.8 to 51.3). Chinese economic reports later this week include Thursday’s Oct trade report (exports expected -3.8% y/y and imports expected -7.6% y/y) and Friday’s Oct CPI and Oct new yuan loan report.
Optimism rises for US/Chinese trade deal as China says there is a “consensus in principle” — Market optimism about a US/Chinese phase one trade deal improved last Friday after China’s Ministry of Commerce said that the two sides have reached a “consensus in principle.” However, the U.S. was more measured and referred only to “progress” and said that working-level talks would continue.
White House trade advisor Navarro said there were “good talks” on Friday among Chinese Vice Premier Liu, Treasury Secretary Mnuchin, and USTR Lighthizer in their telephone conference call. White House economic advisor Kudlow said last Friday that the two sides are close to finishing a deal on increased Chinese purchases of U.S. ag products, currency stability, and the opening of China’s financial services market to American firms. He said the two sides have made “excellent progress” on IP theft, which is apparently the key outstanding issue. He said the issue of forced tech transfer will be left until phase two of the trade talks.
Commerce Secretary Ross on Sunday said that licenses for U.S. companies to buy Huawei goods will be coming “very shortly.” That was a positive sign since it suggested that the Trump administration is giving those licenses as a concession in a soon-to-be-concluded phase one trade deal.
U.S. and Chinese officials last week tried to reassure the markets that the time schedule for a deal hasn’t changed even though Chile canceled the APEC Summit on Nov 16-17, which was the target date for Presidents Trump and Xi to sign a phase one trade deal. President Trump last week said that the two sides are discussing a new venue and date for a signing ceremony.
Deadline for U.S. tariff decision on EU autos approaches — Market concern this week may grow as the Nov 17 deadline approaches for the Trump administration to decide whether to slap tariffs on EU autos. The Trump administration in May agreed to a 6-month delay in the decision. The EU is the main target for the U.S. tariff on imported autos since Japan and South have been exempted by larger trade deals. The EU has pledged to retaliate if the U.S. slaps tariffs on EU autos, which would cause a new and heavy hit to the European manufacturing sector.
The US/EU trade talks have made virtually no progress in recent months since the EU refuses to add agriculture to the talks. However, Commerce Secretary Wilbur Ross on Sunday said that the Trump administration may not need to slap tariffs on European autos because the administration has held “good conversations” with automakers in the EU, Japan and elsewhere about making more autos in the U.S. Mr. Ross on Sunday said, “Our hope is that the negotiations we’ve been having with individual companies about their capital investment plans will bear enough fruit that it may not be necessary to put the 232 fully into effect, may not even be necessary to put it partly into effect.”
Q3 earnings season starts to tail off — Q3 earnings season is now mostly over but there are still 89 of the S&P 500 companies that report this week. Notable reports this week include Marriott and Under Armour on Monday; Regeneron and Newmont on Tuesday; Marathon Oil, Expedia Group and TripAdvisor on Wednesday; Walt Disney and Take Two Interactive on Thursday; and Duke Energy and Ameren on Friday.
The consensus is for Q3 SPX earnings growth of -2.0% y/y (+0.5% ex-energy), according to Refinitiv. Looking ahead the consensus is for SPX earnings growth of +2.2% in Q4, +7.4% in Q1-2020, +7.7% in Q2-2020, and +12.0% in Q3-2020. On a calendar basis, earnings growth in 2019 is expected to slump to +1.3% from 2018’s stellar pace of +22.7%, but then improve to +10.6% in 2020.
