Weekly Market Update: Weak data and political follies dent markets until solid Friday jobs report eases concerns
Fri, 04 Oct 04:04 PM EST/09:04 PM GMT
Volatility returned this week as soft PMI readings in the US caused interest rates and stocks to decline. Tuesday’s ISM manufacturing reading registered the lowest since 2009 and was the second consecutive print in contraction territory. The S&P fell through the 50-day moving average for the first time in about a month on more robust volumes. Yields slipped, led by aggressive buying at the short end of the curve. Expectations for an October rate cut increased and the US curve steeped to levels not seen in more than two months. Thursdays ISM services figure was soft as well, suggesting to some the weakness seen in manufacturing may be leaking into the consumer side of the US economy. Friday’s September US unemployment rate fell to a 50-year low, but wage gains moderated noticeably. Markets seemed to view the jobs figures in a positive light while also keeping the door open for more easing by the Fed. Stock markets reversed and moved higher while Treasury yields largely held at the lower levels forged earlier in the week. The Dollar index touched fresh 2-year highs early on but backed off after the string of disappointing US data. The pound made modest gains as Boris Johnson submitted a new Brexit proposal that was constructive enough to ease fears about the UK ‘accidentally’ crashing out of the EU. For the week, the S&P fell 0.3% and the DJIA dropped 0.9%, while the Nasdaq gained 0.5%.
The discord in Washington remained at extremely intense levels throughout the week. Speaker Pelosi and other top Democrats said they saw a quid pro quo in the Ukraine call transcript, while President Trump doubled down on his corruption allegations and publically called for China to launch an investigation into Joe Biden, while also broadening his ‘witch hunt’ allegations to suggest big drug companies are in cahoots with Democrats and the news media. Separately the WTO issued a ruling granting the US the right to target $7.5B in EU imports with trade sanctions as a result of Airbus subsidies which the White House quickly jumped on, issuing a list of tariffs to be implemented later this month. Commentary remained somewhat constructive in the lead up to the next round of China trade talks in Washington next week.
In corporate news this week, US auto sales slumped after seeing encouraging early summer numbers, though GM deliveries rose while truck sales weighed down Ford, and Tesla came up short against its plan for September deliveries. Schwab, AmeriTrade, E-Trade, and Ally Bank followed Interactive Brokers’ lead and reduced their stock, ETF, and options commissions to zero. Lennar reported strong Q3 results and pointed to lower interest rates and slow price depreciation positively impacting sales. GoPro shares sank after the sport camera-maker cut guidance due to production delays with its latest Hero8 models. Costco shares fell after its earnings and comps disappointed the street, and Bed Bath & Beyond also missed revenue and SSS estimates. Apple reportedly asked its suppliers to boost production of the iPhone 11, citing stronger than expected demand, which gave a lift on Friday to shares of its manufacturing partners and the Nasdaq.
SUN 9/29 *(CN) CHINA SEPT NBS MANUFACTURING PMI: 49.8 V 49.6E (5th consecutive contraction)
MON 9/30 *(DE) GERMANY SEPT UNEMPLOYMENT CHANGE: -10.0K V +5.0KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E *(DE) GERMANY SEPT PRELIMINARY CPI M/M: 0.0% V 0.0%E; Y/Y: 1.2% V 1.3%E *(US) SEPT CHICAGO PURCHASING MANAGER INDEX (PMI): 47.1 V 50.0E *(US) SEPT DALLAS FED MANUFACTURING ACTIVITY: 1.5 V 1.0E (US) USDA Q3 Grain Stocks Report (bu): Corn 2.11B v 2.42Be; Soybean 913M v 982Me; Wheat 2.39B v 2.32Be *(JP) JAPAN Q3 TANKAN LARGE MANUFACTURING INDEX: 5 V 1E (3rd consecutive decline, lowest since 2013); OUTLOOK SURVEY: 2 V 0E; LARGE ALL INDUSTRY CAPEX: 6.6% V 7.0%E JGB (JP) Japan MoF sells ¥2.1T v ¥2.1T indicated in 0.1% 10-year JGBs: avg yield: -0.158% v -0.265% prior, bid to cover 3.42x (lowest since 2016) v 3.60x prior
TUES 10/1 *(ES) SPAIN SEPT MANUFACTURING PMI: 47.7 V 48.2E (lowest reading since Apr 2013) *(UK) SEPT PMI MANUFACTURING: 48.3 V 47.0E (5th straight month of contraction) *(US) SEP FINAL MARKIT MANUFACTURING PMI: 51.1 V 51.0E (highest since April 2019) *(US) AUG CONSTRUCTION SPENDING M/M: 0.1% V 0.5%E *(US) SEPT ISM MANUFACTURING: 47.8 V 50.0E; PRICES PAID: 49.7 V 50.5E (lowest since June 2009) (EU) EU reportedly prepared to consider a time limit on Irish backstop; could give Northern Ireland assembly a say on leaving the Brexit backstop - press (UK) EU Commission spokesperson denies earlier report on potential time limit for Irish backstop; "The EU is not considering this option at all. We are waiting for the UK to come forward with a legally operational solution that meets all the objectives of the backstop” - Buzzfeed
WEDS 10/2 *(DE) GERMANY SELLS €2.323B VS. €3.0B INDICATED IN 0.0% OCT 2024 BOBL; AVG YIELD: -0.77% V -0.88% PRIOR; BID-TO-COVER: 2.5X V 1.9X PRIOR LEN Reports Q3 $1.59 v $1.32e, Rev $5.86B v $5.52Be (UK) UK PM Johnson: Northern Ireland to initially follow EU rules on agriculture and manufacturing, under no circumstances have checks at or near the border in Northern Ireland - Conservative party conf *(US) SEPT ADP EMPLOYMENT CHANGE: 135K V 140KE GM Reports Q3 deliveries 738.6K, +6% y/y (US) Sen Sanders was hospitalized on Tues after experiencing chest pains at an event; two stents were surgically inserted; cancels all events until further notice (US) USTR official: US will impose retaliatory tariffs of 10% on EU aircraft and 25% on EU agricultural and industrial goods; to take effect Oct 18th BBBY Reports Q2 $0.34 v $0.26e, Rev $2.72B v $2.76Be; made substantial progress toward identifying a permanent CEO TSLA Reports Q3 total production 96.2K v 87.0K q/q; deliveries 97.0K v 95.2K q/q (JP) Japan Investors Net Buying of Foreign Bonds: +¥869.2B v -¥164.8B prior week; Foreign Net Buying of Japan Stocks: -¥221.2B v -¥1.18T prior week
THURS 10/3 (FR) France’s European Affairs Minister Montchalin: US tariffs decision is major political mistake *(DE) GERMANY SEPT FINAL SERVICES PMI: 51.4 V 52.5E (lowest reading since Sept 2016) *(EU) EURO ZONE SEPT FINAL SERVICES PMI: 51.6 V 52.0E (lowest reading since Jan 2019) *(UK) SEPT PMI SERVICES: 49.5 V 50.3E (lowest reading since Mar 2019) *(US) Sept ISM Non-Manufacturing Index: 52.6 v 55.0e (lowest since Aug 2016) *(US) AUG FINAL DURABLE GOODS ORDERS: 0.2% V 0.2% PRELIM; DURABLES EX-TRANSPORTATION: 0.5% V 0.5% PRELIM COST Reports Q4 $2.47** v $2.54e, Rev $47.5B v $47.1Be
FRI 10/4 *(IN) INDIA CENTRAL BANK (RBI) CUTS REPURCHASE RATE BY 25BPS TO 5.15%; AS EXPECTED; decision was not unanimous (HK) Hong Kong Chief Executive Lam: Govt has invoked emergency powers (ERO); confirms to ban face masks in protests at public gatherings from Saturday, Oct 5th (UK) BBC's Larna Gordon tweets: So to repeat government documents submitted to court of session say PM will send a letter asking the EU for an extension if no deal is in place by October 19th. But O'Neill says this is in direct contraction to what pm said earlier this week to Parliament. *(US) SEPT AVERAGE HOURLY EARNINGS M/M: 0.0% V 0.2%E; Y/Y: 2.9% V 3.2%E; AVERAGE WEEKLY HOURS: 34.4 V 34.4E *(US) SEPT CHANGE IN NONFARM PAYROLLS: +136K V +145KE (EU) EU Parliament Pres reportedly has rejected UK Brexit proposal - German press (US) New York Fed Nowcast: cuts Q3 forecast to 2.0% from 2.1%; cuts Q4 forecast to 1.3% from 1.8%