Weekly Market Update: Stocks retreat from highs, still awaiting word on pending trade deals
Fri, 22 Nov 04:06 PM EST/09:06 PM GMT
The week’s trading opened amid news of a surprise meeting between President Trump, Treasury Secretary Mnuchin and Fed Chairman Powell at the White House on Monday. Details were minimal but many speculated China was high on the list of issues discussed especially in light the recent reports that continued disagreements surrounding agricultural purchases and IP remain the key impediments to finalizing ‘Phase 1’ of the trade deal. Developments outside the scope of the trade deal added to the complexity after the US Congress overwhelmingly passed the Hong Kong Human Rights and Democracy Act. Both sides tried to downplay concerns, suggesting deal talks continued, and that Hong Kong won’t derail them. Nevertheless, intrigue grew over whether or not President Trump will sign the bill while reports out of China warned Hong Kong could very well become another obstacle to any Phase 1 trade deal. Dramatic testimony in the House impeachment inquiry overshadowed reports of progress being made Trump’s other pending trade deal, the USMCA.
The October FOMC minutes echoed what we have heard from a litany of Fed officials since that meeting; rates are on hold unless there is a material change in the outlook. US manufacturing data rebounded and topped expectations but continued to fare significantly better than overseas readings. Treasury yields drifted lower through the week, extending a recent trend, which included a flattening along the US curve. WTI crude prices rose and for much of the week held above the 50-day moving average at levels not seen since September. According to multiple reports OPEC+ produces are unlikely to deepen output cuts when they meet in early December, but the coordinated production levels are expected to be extended for another 6-months. US indices topped out at new high water marks on Tuesday before backing off on US/China-related hand wringing. The S&P fell for the first time in six week, slipping 0.3%, while the DJIA lost 0.5% and the Nasdaq dropped 0.3%.
In corporate news this week, a slew of retail companies reported to cap off the third quarter earnings season. Home Depot shares dropped despite an earnings beat as the company’s sales grew short of analyst estimates and the company cut its outlook citing the potential impact on consumers from recently announced tariffs. Lowe's posted a beat and raised its yearly forecast, as well as announced plans to restructure its Canadian operations. Kohl’s slashed its EPS guidance and predicted the current highly promotional environment will continue through the end of the year. Target shares surged after crushing earnings expectations and raising its outlook amid broad-based strength across multiple metrics. Macy’s cut its forecast, pointing to a warmer fall and weaker spending by international tourist customers. Gap outperformed already diminished expectations, despite cutting its FY19 same store sales outlook, while reaffirming its plans to spin off Old Navy. On the M&A front, Novartis is said to be among various suitors that are in talks to acquire The Medicines Co. LVMH reportedly raised its takeover offer to get Tiffany to open its books. HPQ’s board unanimously rejected the previously announced unsolicited bid from Xerox. PayPal announced it would buy rewards platform Honey Science for $4B, its largest ever acquisition.
MON 11/18 (US) Fed Chair Powell: Did not discuss expectations for monetary policy when meeting with President Trump and Treasury Sec Mnuchin at White House today - press FCC Chair Pai: Calls for public auction of C-band airwaves - Tweet
TUES 11/19 MDCO Novartis said to among various suitors which are in talks on purchase of company - press HD Reports Q3 $2.53 v $2.52e, Rev $27.2B v $27.5Be KSS Reports Q3 $0.74 adj v $0.85e, Rev $4.63B v $4.67Be *(US) OCT HOUSING STARTS: 1.314M V 1.320ME; BUILDING PERMITS: 1.461M V 1.385ME (CA) Bank of Canada (BOC) Wilkins: while the policy rate may be low at 1.75%, there's still room to maneuver; economy and financial system are in a good position to weather potential global economic storm
WEDS 11/20 LOW Reports Q3 $1.41 v $1.35e, Rev $17.4B v $17.7Be TGT Reports Q3 $1.36 v $1.18e, Rev $18.7B v $18.5Be (US) House impeachment inquiry testimony: US Ambassador to EU Sondland says explicitly there was a "quid quo pro" (CN) Phase 1 of US-China trade deal reportedly may not be completed this year; talks may be getting more complicated - press *(US) FOMC OCT MINUTES FROM OCT 30TH MEETING: MOST SAW RATES AS APPROPRIATE UNLESS THERE IS A MATERIAL CHANGE; MOST SAW RATES AS WELL CALIBRATED (JP) Japan Investors Net Buying of Foreign Bonds: ¥119.4B v ¥530.0B prior week; Foreign Net Buying of Japan Stocks: ¥110.3B v ¥569.8B prior week THURS 11/21 TKA.DE Reports FY18/19 Net -€304M v -€62M y/y, adj EBIT €802M v €805Me, Rev €42.0B v €41.6Be; proposes suspending FY19 dividend M Reports Q3 $0.07 v $0.01e, Rev $5.17B v $5.31Be *(EU) ECB ACCOUNT OF OCTOBER POLICY MEETING (OCT MINUTES): Officials expressed concern over SPF inflation revision; strong call was made for unity of Governing Council *(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: 10.4 V 6.0E GPS Reports Q3 $0.53 v $0.51e, Rev $4.00B v $3.95Be
FRI 11/22 *(DE) GERMANY Q3 FINAL GDP Q/Q: 0.1% V 0.1%E; Y/Y: 0.5% V 0.5%E *(FR) FRANCE NOV PRELIMINARY MANUFACTURING PMI: 51.6 V 50.9E (4th consecutive month of expansion) (EU) ECB President Lagarde: Face a global environment that is marked by uncertainty; Europe needs a new policy mix - inaugural comments from Frankfurt *(US) NOV PRELIMINARY MARKIT MANUFACTURING PMI: 52.2 V 51.4E (7-month high) (US) NOV FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 96.8 V 95.7E