U.S.-Sino trade conflicts dragged stocks lower early in the week but constructive trade news at the end of the week pushed markets higher putting an end to a three-week losing streak. Aggressive moves by the U.S. were met with retaliatory promises by the Chinese early in the week but a welcomed ‘phase 1’ deal was announced on Friday sending a positive charge into the markets. Stocks, commodities, foreign currencies, and interest rates all moved higher in lock step.
- Outside of blacklisted companies, capital controls, NBA blackouts, currency guardrails, agricultural deals, tariff cancelations, and the announcement of a ‘phase one’ deal, it was a pretty quiet week on the U.S. China front.
- U.S. tariffs on $250b scheduled to take effect next week on Chinese imports were cancelled. China then agreed to cancel their retaliatory tariffs and purchase $40b-$50b of U.S. agricultural products.
- U.S. and Chinese delegations are expected to meet at an upcoming conference in mid-November to sign the ‘phase 1’ agreement. It is expected that ‘phase 2’ and ‘phase 3’ will address intellectual property, the opening of Chinese financial services markets, and currency policy.
- Brexit made headlines early in the week as PM Johnson suggested a deal is ‘impossible’ without a border between the UK and Northern Ireland. By week’s end, U.K. and Irish PMs Johnson and Varadkar had constructive talks and positive EC narratives further reduced chances of a ‘hard-Brexit’ scenario.
- Earnings season kicks off this coming week with 113 companies reporting. Negative analyst earnings revisions have been outpacing positive revisions by a 2 to 1 margin.
- Three speaking engagements by Jerome Powell and ten from other Fed Governors alongside the release of the September FOMC minutes had Fed handicapping very much back in focus last week.
- Powell came across slightly hawkish but softening job numbers and slowing inflation (CPI) continued to build a sound case for the doves. FOMC minutes did serve to reinforce the notion that market policy rate expectations may have been a bit overdone.
- The Fed announced a commitment to purchasing $60b/month in T-bills, at least through Q220, in an effort to keep overnight funding markets stable. The 3m/10yr slope briefly un-inverted last week for the first time since July 23 and only the second time in 108 days.
- Fed fund futures are currently pricing in a 74% probability of a 25bps rate cut at the upcoming October 30th FOMC meeting.
Economic Release Highlights
- September headline and core CPI did not change from August levels (1.7%,2.4%) and the monthly numbers softened slightly.
- NFIB Small Business Optimism Index eased a further 1.3 in September to 101.8, now back at early 2019 levels. Business uncertainty (tariffs) and a lack of commitment to business spending are dampening sentiment.
- The August JOLTS report saw job openings fall 1.7%, a third monthly decline and now down 4% YoY. Hires (-3.3%), quits (-3.9%), and the quit rate (-0.10%) all fell on the month signaling no real capacity stress and an overall cooling job market.
- Record consecutive weekly jobless claims (<300k and <250k) continued their weekly streaks, now at 240 and 105 respectively.
- UofM consumer sentiment (p) jumped sharply higher last week, handily beating consensus estimates, indicating the consumer remains positive beginning the fourth quarter.