Better than expected corporate earnings, a strong October jobs report, and more constructive trade narratives pushed equity markets to multiple new highs last week.  Last week was peak for 3Q earnings season and companies did not disappoint with beat rates overall trending at 70%. Interest rates fell across the curve and the slope shifted more notably into positive territory while the USD weakened across most major currencies.

Market Anecdotes

  • Indications on Friday that U.S.-Sino ‘Phase 1’ trade deal has been agreed to in principle was very much welcomed by risk markets globally.
  • The FOMC cut rates by 25bps as expected to the 1.50%-1.75% range with a relatively upbeat overall economic assessment highlighting strength in the labor market and household spending offsetting weakness in exports and business investment.
  • Powell’s presser reinforced their consensus economic outlook, positioning the Fed for a flat path forward on rates barring any material changes.
  • UK parliament approved December 12th elections where the Conservatives hope to win majority to secure the approval of the withdrawal agreement prior to the January 31, 2020 deadline.
  • Overall earnings and revenue beat rates are 70% and 58% with blended FactSet S&P earnings growth of 2.7% (improved from last week’s -3.8%).  The blended FactSet S&P revenue rate is 3.1%, also up from last week’s 2.8%.
  • Of note is that international stocks have very much participated in the rally as evidenced by the Euro Stoxx 600 breaking out of its one-year range last week. The USD outlook is key to the outlook for non-U.S. assets from a U.S. investor perspective.
  • Sweden, one of the first countries to introduce NIRP, has sided with studies showing NIRP has been ineffective in stimulating economic growth and plans to hike in December.
  • The longest bull market in history was reaffirmed last week, now lasting 3,889 days covering a 353% gain.

Economic Release Highlights

  • Q3 U.S. GDP came in at 1.9%, down slightly from 2Q’s 25 level supported by a healthy 2.9% consumer spending rate and residential investment (5.1%) provided a boost for the first time since Q117.  Nonresidential fixed investment fell 3% in a troubling sign for business investment and manufacturing.
  • September’s PIO report had core PCE at consensus 1.7% (headline 1.3%).  Income moderated to 0.3% with wages & salaries pretty soft while personal consumption was as expected at 0.2%.
  • October’s employment report was solid at 128,000 jobs (3.6% unemployment), on the high side of consensus range with notable upward revisions to the prior two months.
  • Average hourly earnings in the jobs report of 0.2% MoM and 3.0% YoY alongside a Q3 Employment Cost Index of 2.8% are not indicating any stress in labor capacity at this time.
  • October PMI (51.3) and ISM (48.3) manufacturing surveys showed improvement over September.  The PMI survey has improved sequentially off August’s 10yr low reading and remains less daunting than ISM survey which showed improvements in new orders and exports but material weakness in backlogs and production.
  • S&P Corelogic Case Shiller HPI fell short of consensus  and remained unchanged in August for both MoM (0%/-0.2%) and YoY (2%) basis.  The 2% annual growth is a seven year low.
  • September Pending Home Sales jumped to 108.7 (+1.5%) to its highest level in two years.
  • October Consumer Confidence missed consensus estimates (125.9 v 128.8) due to deteriorating readings on the labor market.  At the same time, outlooks for future income remained strong.