The Market Today
Busy Week Including U.S. – China Trade, Corporate Earnings, December Retail Sales
by Craig Dismuke, Dudley Carter
Busy Week Kicks Off Tomorrow: This week’s calendar is packed with data and events, all kicking off tomorrow. Tuesday’s CPI inflation report and Thursday’s release of December’s retail sales will be key reports for investors.
Fed Communications: There is a flurry of Fedspeak this week with comments from Boston Fed Bank President Rosengren at 9:00 a.m. CT this morning and Atlanta Bank President Bostic at 11:40 a.m. The most meaningful news on the Fed communications front is likely to be the release of the Beige Book on Wednesday. The report will be of particular importance given that its qualitative commentary will cover the holiday shopping season.
Low Expectations for 4Q Earnings, but Going Forward…: With the possibility to create the most market volatility this week is the kickoff of 4Q earnings reports tomorrow. Investors have modest expectations coming in the 4Q reports but high expectations going forward. Earnings have contracted on a year-over-year basis in each of the last three quarters and are expected to contract 2% (year-over-year) in the 4Q results.
Phase One Deal: Also key to the markets this week, Phase One of a U.S. – China trade deal is expected to be signed in Washington D.C. by Wednesday. Any glitch in the signing of the deal could create a significant recoil for the markets, which currently reflect quite a bit of optimism.
Stocks Split at Start of Busy Week of Economic Events: Officials from Beijing are in Washington this week for the expected signing of the phase one trade deal on Wednesday, splitting the kick-off of the quarterly corporate earnings season and release of several important U.S. economic reports. With the calendar saturated with important events, global markets were off to an uneven start on Monday. Stocks rose across Asia to push a continent-wide index up 0.2% but have stuttered in Europe, dragging the Stoxx Europe down around 0.1%. Still, a top index tracking global equities outside of the U.S. remains near an all-time record it set at the start of the new year.
U.K. Yields Break Away from Global Rise: Sovereign bond yields appear more synchronized as curves have drifted up modestly across most major countries. The U.K. Gilt curve was the exception, with yields posting sharp declines in parallel fashion. The pound also weakened after data showed the U.K. economy shrank unexpectedly in November and another official from the Bank of England said it might be time to cut rates to support a slowing economy. Treasury yields rose last week despite dipping Friday in response to the softer December payroll data. Yields had ticked higher by between 1 and 2 bps around 7 a.m. CT. U.S. equity futures had gained 0.3%.
ICYMI – January 10, 2020 Weekly Market Recap: Stocks and yields both rose last week despite Friday’s dip that followed a softer-than-expected December payroll report. Markets recovered on Monday and Tuesday from a flare up in geopolitical tensions the week prior after a U.S. airstrike took out a top Iranian military leader. The calm came to a quick end Tuesday evening, however, following Iran’s retaliatory response that hurled missiles at Iraqi bases housing U.S. troops. The mid-week disruption was ultimately short-lived as Iran hinted the attack “concluded” its response and President Trump signaled the U.S. would not respond militarily since no American lives were lost. While yields and stocks had both moved back up on Thursday as nerves calmed, both fell back after December’s jobs report disappointed. While unemployment hit another decades-low and prime age participation a new cycle-high, the monthly job gain, earnings growth, and hours worked all fell short of expectations. The S&P 500 rose 0.9% as the 10-year yield added 3.2 bps. Click here to view the full recap.