- Weekly global market focus
- Pelosi pans new $1.8 trillion White House stimulus offer but talks continue
- Election odds stabilize with Biden advantage at a spread of 28 points
- Rising Covid infections in U.S. and Europe threaten new restrictions
- Q3 earnings season begins with Wall Street banks
Weekly global market focus — The U.S. markets this week will focus on (1) the prospects for a Pelosi-Mnuchin stimulus bill, (2) the betting odds and poll numbers ahead of the November 3 election in just three weeks, (3) the worsening Covid infection rates in the U.S. and Europe, (4) the beginning of Q3 earnings season with 29 of the S&P 500 companies reporting this week, and (5) another busy week for Fedspeak with eight appearances by various Fed officials.
In Europe, the focus will mainly be on whether there is any progress in the Brexit negotiations ahead of the 2-day EU summit later this week (Thu-Fri), which is supposed to be the deadline for a deal. The markets seem to be expecting some last-minute progress.
In Asia, China will get back to a full week of trading after last week’s Golden Week holidays. Tonight’s China’s Sep export report is expected to show a solid advance of +10.0% y/y. Wednesday night’s China Sep CPI is expected to ease to +2.0% y/y from Aug’s +2.4%.
Pelosi pans new $1.8 trillion White House stimulus offer but talks continue — Treasury Secretary Mnuchin last Friday sent a new $1.8 trillion stimulus offer to Speaker Pelosi, up from the previous offer of $1.6 trillion. Speaker Pelosi in a letter to House Democrats (reported by Politico) panned the offer by saying that the new White House offer was “one step forward, and two steps back” because the higher offer only meant that President Trump “wants more money at his discretion to grant or withhold.”
Ms. Pelosi also said in her letter, “At this point, we still have disagreement on many priorities, and Democrats are awaiting language from the Administration on several provisions as the negotiations on the overall funding amount continue.”
President Trump on Friday said he now wants a bigger stimulus bill than either party is offering, which suggested that he was willing to go above Ms. Pelosi’s $2.2 trillion bill. However, the White House communications office quickly took back Mr. Trump’s statement by saying that the White House wants a package below $2 trillion. Senate Majority Leader McConnell may have already told the White House that he would not bring a stimulus bill of $2.0 trillion or more before the Senate.
The Pelosi-Mnuchin talks on a stimulus bill are expected to continue this week, although time is running very short to push a deal through Congress even if Pelosi-Mnuchin reach an agreement.
The House is on recess until after the election but can be called back to Washington if a vote is needed on a stimulus bill. The Senate is not due to return to Washington until next Monday (Sep 19), with a vote expected before the election on Amy Coney Barrett for the Supreme Court.
Election odds stabilize with Biden advantage at a spread of 28 points — There are now only three weeks left until the election, and more than 6 million Americans have already voted. The second Trump-Biden debate that was scheduled for this Thursday has officially been canceled after President Trump refused to participate in a virtual debate. The fate of the third and final debate next Thursday (Oct 22) has yet to be determined.
The betting odds at PredictIt.org, for whatever they are worth, stabilized last week and former VP Biden currently has an advantage of 28 points (Biden 66% versus 38% for Trump), up from 10 points (57% for Biden, 47% for Trump) before Sep 29 Trump-Biden debate.
Meanwhile, the betting odds currently favor Democrats winning full control of Congress. The spread in favor of Democrats taking control of the Senate is currently 24 points (63% for Democrats versus 39% for Republicans). The Democrats are heavily favored to retain control of the House with the odds being at 88% for Democratic control versus 14% for Republican control.
Rising Covid infections in U.S. and Europe threaten new restrictions — The markets are worried about the rising level of Covid infections in the U.S. and Europe, which could get worse going into winter as people are forced indoors. The 7-day average of new U.S. Covid infections has risen to a new 2-month high of about 55,000, up sharply from the low of 35,000 seen in early-September.
Meanwhile, Europe is considering new restrictions to battle a resurgence of the virus. New virus infections last week reached record highs in France, UK, Spain, and the Netherlands, and new 5-month highs in Italy and Germany.
Q3 earnings season begins with Wall Street banks — Q3 earnings season begins in earnest this week with earnings reports from 29 of the S&P 500 companies. Notable reports this week include Citigroup, Blackrock, and JP Morgan Chase on Tuesday; Goldman Sachs, Bank of America, Wells Fargo, and United Airlines on Wednesday; Morgan Stanley on Thursday; and State Street, Bank of NY Mellon, JB Hunt Transport, and Kansas City Southern on Friday.
The consensus is for S&P 500 earnings growth in Q3 of -21.0% y/y (-17.1% y/y ex-energy), according to surveys by Refinitiv. The consensus is for Q3 revenue growth of -4.4% y/y (-1.5% y/y ex-energy). Looking ahead, the consensus is for SPX earnings growth of -13.4% in Q4, which would lead to an overall earnings decline for calendar 2020 of -19.6%. The consensus is for SPX earnings to then grow by +27.4% in 2021, overcoming the expected decline in 2020.
