- Weekly global market focus
- US/Chinese trade deal moves ahead despite uncertainty about tariff roll-backs
- Markets wait to see if there will be a Trump tariff on EU autos this week
- 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) any progress in the US/Chinese trade talks, (2) a luncheon address on Tuesday by President Trump at the Economic Club of New York on the topic of trade and economic policy, (3) the beginning of public impeachment hearings in the House later this week, (4) whether Fed Chair Powell in his appearances before Congress on Wednesday and Thursday causes any shift in market expectations for Fed policy, (5) a busy week for Fedspeak with nine appearances by Fed officials other than Mr. Powell, (6) whether last week’s surge in global bond yields continues as the markets look ahead to a US/Chinese trade deal, and (7) the closing days of Q3 earnings season with only 16 of the S&P 500 companies reporting this week.
This week’s key U.S. economic reports include (1) Wednesday’s Oct CPI report (expected unchanged from Sep’s +1.7% y/y and +2.4% core), (2) Friday’s Oct retail sales report (expected +0.2% and +0.4% ex-autos), and (3) Friday’s Oct manufacturing production report (expected -0.5%).
The European markets this week will focus on whether President Trump slaps tariffs on EU autos ahead of Sunday’s self-imposed deadline. Wednesday’s Sep Eurozone industrial production report is expected to be weak at -0.2% m/m and -2.3% y/y, indicating an ongoing Eurozone manufacturing recession.
The UK markets will focus on the prospects for Brexit with the UK election campaign in full swing ahead of the Dec 12 general election. The betting odds remain very strong at 87% for the Conservatives to win the election with the most seats, according to oddschecker.com. Today’s Q3 UK GDP report is expected to ease to +1.1% y/y from Q2’s +1.3% as Brexit and political uncertainty undercut the economy.
The Asian markets this week will focus mainly on any developments on the US/Chinese trade talks. China on Wednesday night will report Oct industrial production (expected +5.4% y/y vs Sep’s +5.8%) and Oct retail sales (expected unch from Sep at +7.8% y/y).
US/Chinese trade deal moves ahead despite uncertainty about tariff roll-backs — The markets remain generally optimistic that there will be a US/Chinese phase-one trade agreement within the next several weeks. There were a raft of conflicting comments and media reports last week about U.S. tariffs. The bottom line is that the U.S. as part of a phase-one trade deal has apparently agreed to scrap the upcoming Dec 15 tariff of 15% on the last $160 billion of Chinese goods. However, President Trump said he has not agreed to any tariff roll-backs such as the Sep 1 tariff of 15% on $110 billion of Chinese goods. Mr. Trump’s comment seems to fly in the face of China’s statement last week that the two sides have agreed to roll back tariffs on a proportional basis as the agreement is implemented.
There were reports last week that the U.S. and China are still trying to meet their original deadline of this weekend (Nov 16-17) for a deal, which was the date of the now-canceled APEC Summit. However, the markets will not be surprised if the timing of a deal slips into late November or early December considering that there still seems to be a significant amount of room between the two sides, particularly on whether the U.S. will roll back any tariffs.
The markets would be pleased if the two sides this week could announce an official date and location for a signing summit between Presidents Trump and Xi, since that would at least curtail last-minute demands for concessions. Reuters reported last week that Dec 3-4 in London is being seriously considered as a venue since President Trump will already be in London for a NATO meeting. However, Reuters said the two sides are considering many other dates and locations in Europe or Asia. President Trump continues to insist that the signing ceremony will be in the U.S.
Markets wait to see if there will be a Trump tariff on EU autos this week — The markets remain nervous about whether President Trump this week might announce tariffs on EU autos ahead of this Sunday’s (Nov 17) self-imposed decision deadline. Mr. Trump could decide to further delay the deadline as negotiations continue. EU Commission President Jean-Claude Juncker said last Thursday that the U.S. this week will not impose tariffs on EU autos. However, the markets will wait for the last word from Mr. Trump as opposed to any hopeful comments by EU officials.
The global stock markets are likely to drop sharply if Mr. Trump goes ahead with a U.S. tariff on European autos since that would cause a heavy hit to the German and European manufacturing sectors, which are already in a recession. The EU has already said it would retaliate with tariffs on $39 billion of U.S. goods if Mr. Trump proceeds with tariffs on EU autos, which would obviously cause another hit to U.S. exports and the U.S. economy.
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 Tyson Foods on Tuesday; Cisco and Nordstrom on Wednesday; and Walmart and Nvidia on Thursday. The consensus is for Q3 SPX earnings growth of -0.5% y/y (+2.1% ex-energy), according to Refinitiv. Looking ahead, the consensus is for SPX earnings growth of +0.6% in Q4, +6.8% in Q1-2020, +7.3% in Q2-2020, and +10.2% in Q3-2020. On a calendar year basis, earnings growth in 2019 is expected to slump to +1.3% from 2018’s stellar pace of +22.7%, but then improve to +10.1% in 2020. Q3 earnings have been better than expected. Of the 446 companies in the S&P 500 that have reported, 74.2% have beaten the consensus, which is better than the long-term average of 64.8% and the 4-quarter average of 74.1%, according to Refinitiv.
