Upbeat earning, progress toward an orderly Brexit, and lingering positive sentiment surrounding U.S.-Sino trade negotiations moved equity markets slightly higher on the week. This was a second consecutive positive week and pushed the month into the black as well. On the flipside, the USD and long-term U.S. Treasuries lost further ground while the yield curve steepened. Constructive earnings and news bits on Brexit and trade may serve to bolster risk markets as we progress into the fourth quarter.

Market Anecdotes

  • A third negotiated Brexit deal was shot down by Parliament over the weekend which triggered a law passed by British Parliament forcing the U.K. government to request an extension from the EU.  EU leaders are expected to discuss and respond in the coming week.
  • 15% of S&P 500 companies have reported thus far with FactSet reporting 84% earnings beat rates, 64% sales beat rates, and overall blended earnings and revenue rates of -4.7% and 2.6% respectively.
  • Current probability for a 25bps rate cut at the upcoming October 30th FOMC meeting is 91%.
  • Fed balance sheet ($3.966t) has grown $187b since ending the unwind on August 1st but is down $494b since beginning the unwind back in October 2017.
  • Both the 3m/10yr and 2yr/10yr have trended toward more positive slope since late August when economic data began to stabilize with a steady dovish Fed backdrop.
  • It’s been a cap weighted month so far in October.  The top market cap decile of stocks are up 0.54% while the bottom 10% are down an average of 2%.
  • Weakness in the USD (-2% since 9/30 YTD high) has translated to momentum in international and emerging market equities, a trend worth noting.
  • A 6% 3Q GDP figure in China hit domestic Chinese equity markets last week.  These are the slowest growth/output results since modern data collection began in 1992.

Economic Release Highlights

  • September retail sales decreased 0.3%, missing expectations of +0.3%, but upward revisions to August (+0.2%) and YoY rates still over 4% have markets taking this month in stride.
  • October housing market index jumped 3 points to 71 (68 expected) in a sign that low mortgage rates are positively influencing homebuilder sentiment.
  • September housing starts (1.256M) and permits (1.387M) were encouraging despite starts missing expectations.  SFH starts moved higher and August had more upward revisions.
  • September industrial production fell back more sharply than expected from a notably strong August report.  Weak non-U.S. demand and low manufacturing volumes (-0.5%) were headlined by low vehicle production and business equipment spending.