- Weekly global market focus
- Pelosi-Mnuchin stimulus talks slow to a crawl
- Election odds turn slightly less favorable for Democrats
- Record high Covid infections in U.S. and Europe threaten more restrictions
- Q3 earnings season is in full gear
Weekly global market focus — The U.S. markets this week will focus on (1) the economic consequences of the record high in new Covid infections in the U.S. and Europe, (2) any progress in the glacial Pelosi-Mnuchin stimulus talks, (3) the political situation with only a week to go until next Tuesday’s election, (4) a big Q3 earnings week with reports from 184 of the S&P 500 companies, (5) the Treasury’s sale of $188 billion of T-notes, and (6) a busy economic schedule with the headline event being Thursday’s Q3 GDP report (expected +31.8% q/q annualized).
In Europe, the EU and UK are now engaged in the intensive Brexit “tunnel” talks, with a view towards reaching a final deal by mid-November. ECB President Lagarde at Thursday’s ECB meeting is expected to acknowledge the worsening pandemic and the likelihood of an expanded QE program. Friday’s Eurozone Q3 GDP report is expected at +9.5% q/q and -7.0% y/y.
In Asia, the focus will be on Thursday’s BOJ meeting, which is expected to produce an unchanged policy. China will report its Oct national PMI reports on Friday night (manufacturing PMI expected unchanged at 51.5 after Sep’s +0.5 to 51.5, and non-manufacturing PMI expected +0.2 to 56.1 after Sep’s +0.7 to 55.9).
Pelosi-Mnuchin stimulus talks slow to a crawl — Stimulus talks between House Speaker Pelosi and Treasury Secretary Mnuchin have slowed to a crawl, although they are still trading proposals. On Friday, White House economic advisor Kudlow said Friday that “the ball’s not moving much right now” on stimulus talks, and Mr. Mnuchin said that Speaker Pelosi had “dug in” and that “significant differences” remain. The two sides over the weekend traded charges of “moving the goalposts.”
There is a small chance that Pelosi-Mnuchin could reach a deal this week, but there is virtually no time left for the House to pass the bill before next Tuesday’s election. Even if the House could get the bill written and presented in time, there are reports that Democratic House members are telling Ms. Pelosi that they don’t want to return to Washington for a vote this week. Meanwhile, the Senate today will vote to confirm Amy Coney Barrett as a Supreme Court Justice and will then leave Washington so that Senators who are up from reelection can hit the campaign trail. The politics for Congressional passage of a deal as large as $1.9 trillion do not seem likely to improve during the lame-duck session due to opposition from Republican Senators.
Election odds turn slightly less favorable for Democrats — The betting odds for a Biden presidency have fallen slightly in the past week, while the betting odds for Democrats taking control of the Senate have fallen substantially.
Regardless of the betting odds, the election vote is already about one-third finished since more than one-third of people have already voted and can’t take their vote back now. Early voting has been very heavy, with 59 million ballots already having been received, according to the University of Florida’s U.S. Elections Project. That means that early voting already amounts to about 43% of the total number of votes received in the 2016 election of 138 million and 25% of the overall 240 million Americans who are eligible to vote.
The betting odds in favor of a Biden presidency have narrowed mildly to a spread of 20 points from 25 points last Monday. The betting odds at PredictIt.org, for whatever they are worth, show the odds in favor of former VP Biden winning the election are now at 62% versus 42% for President Trump.
Meanwhile, the betting-odds spread for Democrats to win the Senate have fallen substantially to 11 points from 25 points last Monday. The odds for control of the Senate are currently at 57% for the Democrats versus 46% for the Republicans, versus 64% Democrats and 39% for Republicans last Monday. The Democrats continue to have strong odds for maintaining control of the House, with the odds at 84% for the Democrats versus 18% for Republicans.
Record high Covid infections in U.S. and Europe threaten more restrictions — The markets are worried about the record high level of Covid infections in the U.S. and Europe, which could get even worse going into winter as people are forced indoors. The 7-day average of new U.S. Covid infections has soared to a record high of 75,000, taking out the previous record high in August of 67,000, according to Johns Hopkins. Many European countries are seeing record highs as well.
In response to the surge in the U.S. new Covid infections, Dr. Fauci last Friday said that the U.S. needs to redouble its safeguard efforts but does not need to shut the country. He said that he is hopeful that at least two vaccines that are “safe and effective” will emerge by the end of November or early December. He also called Gilead’s Remdesivir “quite promising.” Remdesivir was approved last week by the FDA as the first treatment drug for Covid.
Q3 earnings season is in full gear — Q3 earnings season is in full swing this week with reports from 184 of the S&P 500 companies. Notable reports this week include Microsoft and Caterpillar on Tuesday; Visa, Mastercard, GE, and Boeing on Wednesday; Apple, Amazon.com, Alphabet, Facebook, Twitter, and Starbucks on Thursday; and Exxon 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, leading to an overall earnings decline for 2020 of -18.9%. The consensus is for SPX earnings to then grow by +26.3% in 2021, more than overcoming the 2020 decline.
