- Weekly global market focus
- Markets are hoping for a US/Chinese trade agreement next week
- U.S. PCE deflator expected to ease
- SPX earnings hits peak week
Weekly global market focus — The U.S. markets this week will focus on (1) hopes that a US/Chinese trade agreement will be reached after Lighthizer/Mnuchin visit China this week and Vice Premier Liu visits Washington next week, (2) the Tue/Wed FOMC meeting where the Fed is unanimously expected to retain its neutral policy and leave rates unchanged, (3) Friday’s April payroll report, which is expected to show a trend increase of +185,000, (4) the peak Q1 earnings week with 164 of the S&P 500 companies scheduled to report, (5) a busy U.S. economic calendar with raft of key U.S. reports in addition to Friday’s April unemployment report, and (6) potential political uncertainty as Attorney General Barr is due to testify before the Senate Judiciary Committee on Wednesday and the House Judiciary Committee on Thursday.
June WTI oil prices early last week rallied to a new 6-month high after the Trump administration announced that it would not renew waivers to buy Iranian oil that expire on May 2. However, June oil prices then fell sharply by -2.93% last Friday and ended the week with a -1.20% loss on long liquidation pressure sparked by President Trump’s claim that he called OPEC officials and demanded an increase in oil production. In addition, there was talk about whether the U.S. might nevertheless give China waivers on Iranian oil.
In Europe, the markets today will react to Sunday’s election in Spain and whether a stable coalition government can be formed fairly quickly to maintain political stability. The Italian bond market should see support today after S&P last Friday left Italy’s BBB rating intact, although it also retained a negative outlook.
The Bank of England at its policy meeting this Thursday is expected to leave its policy unchanged as Brexit uncertainty persists due to the extension of the Brexit deadline until October 31. The Eurozone on Tuesday is expected to report a slight improvement in Q1 GDP to +0.3% q/q from +0.2% in Q4. National EU CPI reports will be released this week capped by the Eurozone April CPI on Thursday (expected slightly stronger at +1.6% y/y and +1.0% y/y core vs March’s +1.4% and +0.8%, respectively).
Prime Minster May this week is expected to continue her Brexit negotiations with the Labour Party, which she has admitted are “difficult.” Ms. May has so far not been willing to concede to the Labour Party’s demand for the UK to remain within the EU customs union. There appears to be little chance that the UK Parliament will approve a Brexit deal ahead of the May 23 EU elections in three weeks, which means the UK will have to elect a contingent of members to serve in the EU Parliament.
In Asia, the Japanese markets will be closed all this week and next Monday for the Golden Week holidays and the ascension of the new Emperor. The Chinese markets will be closed on Wednesday through Friday for the Labor Day holiday. There are concerns about the potential for erratic FX moves this week due to the Asian holidays.
In China, the focus will be on this week’s US/Chinese trade talks and whether the Chinese PMI reports show the expected stabilization in the Chinese economy. The consensus is for Monday night’s (ET) China April manufacturing PMI to show a +0.1 point increase to 50.6 (after March’s +1.3 point rise to 50.5) and the non-manufacturing PMI to show a +0.2 point increase to 55.0 (after March’s +0.5 to 54.8).Wednesday night’s Caixin Chinese manufacturing PMI report is expected to show a +0.2 point increase to 51.0 (after March’s +0.9 to 50.8), and next Sunday night’s April Caixin Chinese services PMI is expected to be unchanged 54.4 (after March’s +3.3 to 54.4).
Markets are hoping for a US/Chinese trade agreement next week — USTR Lighthizer and Treasury Secretary Mnuchin will be in China for a new round of face-to-face trade talks starting this Tuesday. Chinese Vice Premier Liu will then be in Washington next week for talks beginning on Wednesday.
Various news reports indicate that U.S. and China officials hope to finalize a trade agreement during Mr. Liu’s visit to Washington next week, which would include a date for a Trump-Xi signing summit in late May or June. The last issues reportedly include enforcement and what penalty tariffs will be left in place even after an agreement.
U.S. PCE deflator expected to ease — The PCE deflator data will be released today for both February and March as the Bureau of Economic Analysis finally catches up after the Dec/Jan government shutdown. The consensus is for today’s Mar PCE deflator to rise to +1.6% y/y from Jan’s 2-1/4 year low of +1.4%. The March core deflator is expected to ease slightly to what would be a new 1-year low of +1.7% y/y from Jan’s report of +1.8% and the 6-year high of +2.0% posted on several occasions during 2018. Lower deflator figures today would give the Fed cover to continue its neutral policy and avoid further rate hikes.
SPX earnings hits peak week — This will be the peak week for Q1 earnings with 164 of the S&P 500 companies scheduled to report. Notable reports this week include Alphabet/Google today; Apple, Mastercard and GM on Tuesday; YUM! Brands on Wednesday; Expedia on Thursday; and Berkshire Hathaway on Friday. The consensus for Q1 earnings growth has improved to -0.3% (+1.2% ex-energy), which is better than expectations of -2.0% as of April 1. Of the 299 SPX companies that have reported thus far, 77.3% have reported above-consensus earnings, which is better than the long-term average of 65% and the 4-quarter average of 76%, according to Refinitiv. Looking ahead, the consensus is for SPX earnings growth of +1.9% in Q2, +2.1% in Q3, and +8.6% in Q4. On a calendar year basis, the consensus is for growth of +3.0% in 2019 and +12.2% in 2020.
