There was a bit of push and pull happening last week with soft economic data (surveys) hitting markets early in the week offset by expectations of Fed accommodation and a robust jobs report. The first two days of the quarter were off nearly 3% but that was largely recovered on Thursday/Friday. Trade developments remained in the headlines and were marginally positive on the week. Cyclical areas in the equity markets (energy, materials, industrials, financials) lost ground while defensives and rate sensitive sectors rallied. Interest rates fell across the curve and commodities lost ground led by a 5.5% decline in WTI oil prices.
- A relatively heavy economic calendar drove markets last week. Third quarter earnings season will soon join Fed policy handicapping and trade negotiations as key market focus points.
- 3Q forecasted earnings are expected to be in negative YoY territory at -2.7%. Both 1Q and 2Q were as well but ended up marginally positive.
- Impeachment related developments continued to dominate domestic newswires. Markets have yet to price in any material developments on this front as there is likely much more to this new saga.
- There were sixteen Fed speaking engagements last week alone with the tone clearly lifting markets toward the end of the week. Underwhelming PMI/ISM data translated to Fed easing narratives.
- U.S.-Sino talks are scheduled to happen on this week with economic and renewed political pressure factoring in on both sides which may increase the appetite to move the ball forward.
- A WTO ruling last week in favor of the U.S. in a EU dispute surrounding Airbus subsidies was a step forward for the global free trade initiative.
- A ruling in Hong Kong outlawing face masks used by the protestors is expected to heighten tensions in Hong Kong.
Economic Release Highlights
- The September jobs report came in very strong at 136,000 jobs, a 50-year low unemployment rate of 3.5%, and notable upward revisions to prior months.
- Despite a tight labor market, average hourly earnings in the September employment report eased significantly, up only 2.9% YoY – the lowest since July 2018.
- September U.S. PMI readings of 51.1, 50.9, 51.0 (M, S, C) remained relatively stagnant but still in expansionary territory. came in at consensus and on the high end of the expected range.
- Global manufacturing PMIs were a bit more encouraging at 49.7, which has now been up two months in a row after a streak of fifteen consecutive negative months.
- Global services and composite PMI readings for September were 51.6 and 51.2 respectively.
- September ISM manufacturing index fell sharply to its lowest level in 10 years and missing consensus by a good margin (47.8 v 50.0).
- September ISM services index of 52.6 is still in expansionary territory but was well below consensus and is now at its lowest reading since August 2016.
- The report on international trade sits on the edge of contraction. Exports (0.2%), imports (0.5%), and a trade deficit of $54.9b in August highlight weak non-U.S. demand and trade uncertainty.