Weekly Market Update: Negotiations on China trade and Brexit reach crescendo
Fri, 11 Oct 04:29 PM EST/09:29 PM GMT
Stock markets entered the week on a continued upswing. US China trade talks kicked off in Washington D.C. on Monday amid optimism that deputy level meetings could set the table for productive meetings at the principle level later in the week. Those hopes took a hit by mid-week after the Trump Administration surprised markets by announcing an expansion of the Chinese company black list and the introduction of visa bans tied to human rights violations by the Chinese government. By Thursday though, the pendulum began to swing back in favor expectations that some sort of positive development was still possible. A narrative begun to develop around a path towards a skinny deal in which the US will hold back on raising tariffs this month in exchange for some kind of currency agreement framework, guarantees on IP protections, and a continued step-up in Chinese agricultural purchases. Late Friday afternoon, President Trump met with China Vice Premier Liu and confirmed the tentative ‘phase one’ trade deal, which will be written up over the coming weeks and followed by phase two and perhaps phase three negotiations to cover other thornier issues.
September US PPI figures remained notably cool, but the reading was somewhat offset by CPI data that was closer to market expectations. The data did little to change the overall perception of the inflation landscape. Fed Chairman Powell underscored that the central bank will remain highly data dependent while also foreshadowing an eventual announcement on Friday that the Fed will resume organic balance sheet expansion, purchasing $60 billion in Treasuries per month. The FOMC minutes highlighted the wide array of views held by FOMC members suggesting that, though futures markets were once again pricing in a rate cut later this month, the debate at the upcoming FOMC meeting will likely be intense. Thursday saw the largest jump in the British pound in more than half a year as a meeting between the British and Irish PMs reportedly yielded new concessions from the UK that might lead to resolution of the backstop issue. Turkey launched an offensive against Kurdish fighters in Northeast Syria after President Trump decided to withdraw US forces from the region, a choice that drew the ire of many Republicans in Congress and prompted Trump to threaten new tariffs that could “destroy” Turkish economy. As the trade deal made progress, Treasury yields rose throughout the week, and equities rose modestly, with the S&P up 0.6%, the DJIA gaining 0.9%, and the Nasdaq adding 0.9%.
In corporate news this week, GM and UAW labor talks remained stuck in the mud, despite efforts from CEO Barra to push for an end to the strike. Nike shares saw some volatility midweek amid a spat between the NBA and China over league policy regarding support for Hong Kong protestors. Domino’s earnings disappointed investors and weighed on the pizza sector, but a buyback program announcement and CEO comments pointing to a promising long-term outlook turned shares around. Wendy’s caught a bid after disclosing at an investor day its best Q3 North America comps since 2015. US Steel slumped after announcing cost cuts and a CFO change. Bed Bath and Beyond jumped after landing former Target Inc CMO Mark Tritton as its new CEO, ending a lengthy search.
MON 10/7
(CN) Reportedly US Commerce Dept to place 28 Chinese govt and commercial organizations onto 'entity list' today - press
*(US) AUG CONSUMER CREDIT: $17.9B V $15.0BE
(EU) ECB: Current aggregate level of NPLs remain elevated by international comparison - 2019 supervisory bank stress test results
(TR) Pres Trump warns Turkey against taking actions that are "off limits" or he will "totally destroy and obliterate the Economy of Turkey (I’ve done before!)"
066570.KR Reports prelim Q3 (KRW) Op 781.1B v 748.8B y/y, Rev 15.7T v 15.5T y/y
TUES 10/8
(CN) China Embassy: US visa restrictions seriously violates the basic norms governing international relations, interferes in China’s internal affairs and undermines China’s interest
(CN) US imposes visa bans on Chinese persons linked to abuses against the Uighurs in Xinjiang province - press
(US) Fed Chair Powell: Fed will act as appropriate to support continued growth, a strong job market, and a return to 2% inflation; will carefully monitor incoming data; Fed will soon announce steps to add reserves over time - comments at NABE conf
*(US) SEPT PPI FINAL DEMAND M/M: -0.3% V +0.1%E; Y/Y: 1.4% V 1.8%E
WEDS 10/9
*(US) AUG JOLTS JOB OPENINGS: 7.051M V 7.250ME
*(US) FOMC MINUTES FROM SEPT 18 MEETING: TRADE UNCERTAINTY HAS INCREASED, GLOBAL GROWTH PROSPECTS WEAKENED, AND GEOPOLITICAL RISKS INTENSIFIED SINCE JULY
(JP) Japan Investors Net Buying of Foreign Bonds: -¥428.3B v +¥869.2B prior week; Foreign Net Buying of Japan Stocks: +¥1.07T v -¥221.2B prior week
(CN) US is said to be considering previously agreed currency agreement with China as part of trade deal, which could see next tariff increase cancelled under first part of trade deal with China - US financial press
THURS 10/10
3382.JP Reports H1 Net ¥110.65B v ¥101.36B y/y, Op ¥205.13B v ¥199.61B y/y, Rev ¥3.31T v ¥3.34T y/y; to close 1,000 unprofitable stores and cut 3K jobs
*(EU) ECB ACCOUNT OF SEPTEMBER POLICY MEETING (SEPT MINUTES): Clear majority supported the resumption of QE; some policy makers argued for 20bps rate cut and no QE
*(US) SEPT CPI M/M: 0.0% V 0.1%E; CPI (EX-FOOD/ENERGY) M/M: 0.1% V 0.2%E ; CPI NSA: 256.759 V 256.955E
(US) TREASURY $16B 30-YEAR BOND REOPENING DRAWS 2.170%; BID TO COVER 2.25 V 2.22 PRIOR AND 2.26 AVERAGE OVER LAST 8 (Record low yield)
FRI 10/11
FAST Reports Q3 $0.37 v $0.36e, Rev $1.38B v $1.37Be
(US) Pres Trump: "Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!"
*(US) OCT PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 96.0 V 92.0E (best since July)
*(CN) US AND CHINA HAVE REPORTEDLY REACHED A PARTIAL DEAL WHICH COULD SET UP A 'TRADE TRUCE' - PRESS
*(US) PRES TRUMP: WE'VE REACHED A PHASE ONE DEAL WITH CHINA; WILL TAKE UP TO FIVE WEEKS TO GET DEAL WRITTEN
September US PPI figures remained notably cool, but the reading was somewhat offset by CPI data that was closer to market expectations. The data did little to change the overall perception of the inflation landscape. Fed Chairman Powell underscored that the central bank will remain highly data dependent while also foreshadowing an eventual announcement on Friday that the Fed will resume organic balance sheet expansion, purchasing $60 billion in Treasuries per month. The FOMC minutes highlighted the wide array of views held by FOMC members suggesting that, though futures markets were once again pricing in a rate cut later this month, the debate at the upcoming FOMC meeting will likely be intense. Thursday saw the largest jump in the British pound in more than half a year as a meeting between the British and Irish PMs reportedly yielded new concessions from the UK that might lead to resolution of the backstop issue. Turkey launched an offensive against Kurdish fighters in Northeast Syria after President Trump decided to withdraw US forces from the region, a choice that drew the ire of many Republicans in Congress and prompted Trump to threaten new tariffs that could “destroy” Turkish economy. As the trade deal made progress, Treasury yields rose throughout the week, and equities rose modestly, with the S&P up 0.6%, the DJIA gaining 0.9%, and the Nasdaq adding 0.9%.
In corporate news this week, GM and UAW labor talks remained stuck in the mud, despite efforts from CEO Barra to push for an end to the strike. Nike shares saw some volatility midweek amid a spat between the NBA and China over league policy regarding support for Hong Kong protestors. Domino’s earnings disappointed investors and weighed on the pizza sector, but a buyback program announcement and CEO comments pointing to a promising long-term outlook turned shares around. Wendy’s caught a bid after disclosing at an investor day its best Q3 North America comps since 2015. US Steel slumped after announcing cost cuts and a CFO change. Bed Bath and Beyond jumped after landing former Target Inc CMO Mark Tritton as its new CEO, ending a lengthy search.
MON 10/7
(CN) Reportedly US Commerce Dept to place 28 Chinese govt and commercial organizations onto 'entity list' today - press
*(US) AUG CONSUMER CREDIT: $17.9B V $15.0BE
(EU) ECB: Current aggregate level of NPLs remain elevated by international comparison - 2019 supervisory bank stress test results
(TR) Pres Trump warns Turkey against taking actions that are "off limits" or he will "totally destroy and obliterate the Economy of Turkey (I’ve done before!)"
066570.KR Reports prelim Q3 (KRW) Op 781.1B v 748.8B y/y, Rev 15.7T v 15.5T y/y
TUES 10/8
(CN) China Embassy: US visa restrictions seriously violates the basic norms governing international relations, interferes in China’s internal affairs and undermines China’s interest
(CN) US imposes visa bans on Chinese persons linked to abuses against the Uighurs in Xinjiang province - press
(US) Fed Chair Powell: Fed will act as appropriate to support continued growth, a strong job market, and a return to 2% inflation; will carefully monitor incoming data; Fed will soon announce steps to add reserves over time - comments at NABE conf
*(US) SEPT PPI FINAL DEMAND M/M: -0.3% V +0.1%E; Y/Y: 1.4% V 1.8%E
WEDS 10/9
*(US) AUG JOLTS JOB OPENINGS: 7.051M V 7.250ME
*(US) FOMC MINUTES FROM SEPT 18 MEETING: TRADE UNCERTAINTY HAS INCREASED, GLOBAL GROWTH PROSPECTS WEAKENED, AND GEOPOLITICAL RISKS INTENSIFIED SINCE JULY
(JP) Japan Investors Net Buying of Foreign Bonds: -¥428.3B v +¥869.2B prior week; Foreign Net Buying of Japan Stocks: +¥1.07T v -¥221.2B prior week
(CN) US is said to be considering previously agreed currency agreement with China as part of trade deal, which could see next tariff increase cancelled under first part of trade deal with China - US financial press
THURS 10/10
3382.JP Reports H1 Net ¥110.65B v ¥101.36B y/y, Op ¥205.13B v ¥199.61B y/y, Rev ¥3.31T v ¥3.34T y/y; to close 1,000 unprofitable stores and cut 3K jobs
*(EU) ECB ACCOUNT OF SEPTEMBER POLICY MEETING (SEPT MINUTES): Clear majority supported the resumption of QE; some policy makers argued for 20bps rate cut and no QE
*(US) SEPT CPI M/M: 0.0% V 0.1%E; CPI (EX-FOOD/ENERGY) M/M: 0.1% V 0.2%E ; CPI NSA: 256.759 V 256.955E
(US) TREASURY $16B 30-YEAR BOND REOPENING DRAWS 2.170%; BID TO COVER 2.25 V 2.22 PRIOR AND 2.26 AVERAGE OVER LAST 8 (Record low yield)
FRI 10/11
FAST Reports Q3 $0.37 v $0.36e, Rev $1.38B v $1.37Be
(US) Pres Trump: "Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!"
*(US) OCT PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 96.0 V 92.0E (best since July)
*(CN) US AND CHINA HAVE REPORTEDLY REACHED A PARTIAL DEAL WHICH COULD SET UP A 'TRADE TRUCE' - PRESS
*(US) PRES TRUMP: WE'VE REACHED A PHASE ONE DEAL WITH CHINA; WILL TAKE UP TO FIVE WEEKS TO GET DEAL WRITTEN
