- Weekly global market focus
- Pelosi sets Tuesday deadline for pre-election stimulus deal
- U.S. election odds remain stable
- Brexit negotiations will continue this week
- Rising Covid infections in U.S. and Europe threaten more restrictions
- Q3 earnings season gears up
Weekly global market focus — The U.S. markets this week will focus on (1) any progress in the Pelosi-Mnuchin stimulus talks, (2) anticipation of the November 3 election outcome, (3) the worsening Covid infection rates in the U.S. and Europe, (4) Q3 earnings season, which gears up this week with reports from 89 of the S&P 500 companies, (5) the Treasury’s sale of 20-year bonds on Wednesday and 5-year TIPS on Thursday, and (6) Fed policy with the Beige Book on Wednesday and ten appearances this week by various Fed officials including Fed Chair Powell today.
In Europe, the focus will be on (1) Brexit negotiations that resume this week in London, (2) comments today by ECB President Lagarde, and (3) Friday’s October PMI reports.
In Asia, the markets today will react to Sunday night’s China Q3 GDP report, which was expected to show an increase of +3.3% q/q and +5.5% y/y, adding to Q2’s gain of +11.5% q/q and +3.2% y/y and thereby completing a full recovery from the -10.0% q/q plunge seen in Q1.
Pelosi sets Tuesday deadline for pre-election stimulus deal — House Speaker Pelosi over the weekend set a deadline of Tuesday for the White House if they want to get a bill passed before the election. Speaker Pelosi and Treasury Secretary Mnuchin held talks over the weekend and will reportedly speak again today even though Mr. Mnuchin is in the Middle East through Tuesday. The two sides still have big differences on the size of the package, the size of individual measures, and the wording of various provisions including a national Covid testing and tracing program.
The White House’s stimulus offer is currently at $1.8 trillion versus Speaker Pelosi’s unchanging demand for $2.2 trillion. Senate Majority Leader McConnell last week said that Republican Senators would not accept a bill of $1.8 trillion or more. However, White House economic advisor Kudlow last Friday said that President Trump would be able to pressure Republican Senators into a deal if there is a Pelosi-Mnuchin compromise. Mr. McConnell starting on Tuesday will hold votes in the Senate on a $500 billion stimulus bill that Ms. Pelosi already called a non-starter.
The odds for a deal before the election remain very low. If there isn’t a deal before the election, then there are hopes that Republicans and Democrats might be able to agree on at least a small stimulus bill during the lame-duck session. If Democrats sweep Washington in the election, then Speaker Pelosi in the lame-duck session may be willing to accept the Senate’s smaller $500 billion deal with the idea that a much bigger Democratic stimulus bill would be forthcoming in early 2021 after Democrats take control.
On the other hand, if Republicans in the election maintain control of the Senate, then Senate Majority Leader McConnell is likely to harden his stance for a smaller stimulus bill than Speaker Pelosi is demanding, meaning the standoff could continue, regardless of who wins the presidency.
U.S. election odds remain stable — The election betting odds last week remained stable with only two weeks left until the November 3 election. More than 27 million people have already voted, according to the University of Florida’s U.S. Elections Project. Meanwhile, it remains to be seen whether this Thursday’s Trump-Biden debate will be held as scheduled.
The betting odds at PredictIt.org, for whatever they are worth, favor former VP Biden by a 26-point margin with the odds for a Biden win at 65% versus 39% for Trump. The odds favor Democrats winning full control of Congress with the odds for Senate control at 65% for Democrats versus 38% for Republicans, and for House control at 87% for Democrats versus 15% for Republicans.
Brexit negotiations will continue this week — UK Prime Minister Johnson last Friday said that the EU will have to fundamentally change its position if there is going to be a Brexit trade deal, but he did not walk away from the talks as he earlier threatened. Brexit talks will continue this week in London. EU officials are now saying that the hard deadline for a deal is mid-November, which would leave just enough time for the EU and national parliaments to ratify the deal before the UK is due to leave the single market on Dec 31.
Rising Covid infections in U.S. and Europe threaten more 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 2-1/2 month high of about 62,000, just mildly below August’s record of about 67,000, according to Johns Hopkins.
Meanwhile, Europe is imposing new restrictions to battle a resurgence of the virus. New virus infections last week reached record highs in France, UK, Germany, Italy, Spain, Belgium, and the Netherlands.
Q3 earnings season gears up — Q3 earnings season gears up this week with reports from 89 of the S&P 500 companies. Notable reports this week include IBM on Monday; Netflix on Tuesday; Northern Trust and Discover on Wednesday; AT&T, Intel, American Airlines, Pultegroup, and Coca-Cola on Thursday; and American Express on Friday.
The consensus is for S&P 500 earnings growth in Q3 of -18.7% y/y (-14.5% y/y ex-energy), according to Refinitiv. Looking ahead, the consensus is for SPX earnings growth of -12.5% in Q4, which would lead to an overall earnings decline for calendar 2020 of -18.9%. The consensus is for SPX earnings to then grow by +26.3% in 2021, overcoming the expected decline in 2020.
