Today’s Big Picture
US equity futures point to a drop at the open and are being driven by two-weekend news items. First, on the impeachment front, a second whistleblower has come forward claiming first-hand knowledge of the allegations against President Trump. Second, reports are indicating Chinese officials are reluctant to agree to a broad trade deal as aimed for by President Trump and would likely exclude the reformation of Chinese industrial policy and government subsidies, two topics of longstanding U.S. complaints.
This combination along with weak economic data out of Europe this morning is adding a fresh dose of uncertainty back into the market following Friday’s supposed Goldilocks September Employment Report, and raises questions over what comes next for US-China trade talks, which resume this Thursday in Washington.
Asian markets were mixed ahead of the latest round of US-China trade negotiations expected to start later this week. Japan's Nikkei lost -0.16%, Shanghai fell -0.92% the Shenzhen Composite lost -1.06% and the Hong Kong Hang Seng dropped -1.11% as the violent protests in the region continued over the weekend. The Houston Rockets general manager learned firsthand just how complicated the situation in Hong Kong is for American companies looking to do business in China. The S&P500/ASX 200 gain +0.71%, the South Korean Kospi rose +0.05%and the New Zealand NZX 50 gained +0.76%.
European markets were mostly up by mid-day with the Stoxx Europe 600 reversing losses from earlier in the day.
Data to Watch
Germany factory orders came in today, (stop me if you’ve heard this one) weaker than expected, falling - 0.6% month-over-month in August versus expectations for a -0.3% decline.
Over in the UK, the Halifax House Price Index rose, (now for something completely different) less than expected, falling -0.4% month over month in September versus expectations for a 0.1% increase. Year-over-year the index rose just 1.1% in September versus expectations for 1.6%.
The only major domestic economic data point published today comes this afternoon when the Federal Reserve shares its Consumer Credit report for August, and investors will be looking to see if revolving credit once again gapped higher as it did per the July data - meaning consumer spending is being supported by taking on more debt.
World Bank President David Malpass is expected to update the bank's economic outlook today.
Stocks to Watch
There are no expected quarterly earnings reports today either before the US stock market opens or after it closes. We will be on the lookout for earnings pre-announcements, particularly those to the downside.
To further reign in costs, HSBC Holdings (HSBC) has announced it will cut another 10,000 jobs on top of the 4,700 redundancies HSBC recently announced due to “an increasingly complex and challenging global environment.”
The Trump administration has removed tariff exemption for bifacial solar panels and will subject to 25% tariffs beginning on October 28. Companies to feel the impact of this removal include First Solar (FSLR), Vivint Solar (VSLR), JinkoSolar Holding (JKS), and Sunrun (RUN).
General Electric (GE) announced this morning that it will freeze the pension plan for about 20,000 US employees with salaried benefits in an attempt to cut its massive debt. We suspect this won’t be the only company to do this.
Broadcom (AVGO) is expected to appeal an interim order imposed by EU antitrust enforcer Margrethe Vestager to cease alleged anti-competitive practices. This marks the first time interim measures have been used in over two decades and could signal sterner measures ahead for Broadcom and other Big Tech companies in Europe.
As the EU prepares to overhaul regulation of digital currencies, the European Commission has asked Facebook (FB) to respond to questions on financial stability, money laundering and data privacy risks associated with its Libra coin project.
And speaking of Libra, PayPal (PYPL) has officially announced it is withdrawing from the consortium of companies assembled to be a part of Facebook’s Libra payment network.
Yesterday talks to end a three-week strike at General Motors (GM) broke down on the topic of investment in US plants with the UAW wanting GM to allocate new work for those factories. As the strike enters its fourth week, investors will begin to reflect the impact in its further quarter forecasts for jobs, industrial production, durable goods and shipments, and GDP.
Ahead of the upcoming merchandising blitz to be had with Frozen 2 and Star Wars: The Rise of Skywalker, Walt Disney (DIS) has opened new Disney Stores inside of 25 Target (TGT) locations. This is part of a larger deal between the two companies that will more than 40 additional Disney Stores open inside Target locations in the coming 12 months.
On the Horizon
This will be the last quiet week before the third-quarter reporting season kicks into high gear. We will hear from just twelve companies including Levis Strauss (LEVI) and Domino’s Pizza (DPZ) on Tuesday, Delta Air Lines (DAL) on Thursday and Fastenal (FAST) on Friday. Next week forty-five S&P 500 companies are scheduled to report.
The big domestic economic data releases for the week come on Tuesday, with the NFIB Small Business Optimism report and the Producer Price Index. Wednesday the Bureau of Labor Statistics releases the August JOLTS report and we’ll get an update on Wholesale Trade Sales and Inventories as well as the FOMC meeting minutes from September 18th. Thursday brings CPI, Average Hourly Earnings, Weekly jobless report, and Bloomberg Consumer Comfort report. We close the week out the Import/Export prices and the weekly Baker Hughes Oil Rigreport.
Upcoming IPOs this week:
- BioNTech (BNTX), a German biotech company developing individualized immunotherapies for cancer, is expected to begin trading on Nasdaq.
- HBT Financial (HBT), a family-owned bank with 64 branches in central and northeastern Illinois, is expected to begin on Nasdaq.
- Vir Biotechnology (VIR), a Phase 2 biotech developing immunologic therapies for infectious diseases is expected to begin trading on Nasdaq.
Dates to mark:
- October 8: New International Monetary Fund Managing Director Kristalina Georgieva is slated to update the IMF’s economic outlook
- October 8-9: Fed Chairman Powell speaks in
- October 10-11: US-China trade talks
- October 15: Next US Democratic Presidential debate
- October 29-30: Federal Reserve monetary policy meeting
- October 31: Brexit?
Friday’s Highlights
Last Friday’s rather broad-based rebound was on lighter-than-usual-volume following what is being called a Goldilocks October Employment report - weak enough to provide additional incentive for the Fed to cut rates this month but not weak enough to panic inventors. All the major US stock market indices started the December quarter off on less-than-firm footing:
- Dow Jones Industrial Average: -1.3%
- S&P 500: -0.8%
- Nasdaq Composite Index: -0.2%
- Russell 2000: -1.5%
- Nasdaq 100: +0.1%
Digging into the details of Friday’s Goldilocks report, we found a lot more to worry about than the headlines would lead one to believe. Areas that are most highly correlated with the business cycle, (such as transports, construction, retail, durable goods manufacturing, etc) lost 14,000 jobs. We always like to look for confirming data points and the net loss of 11,000 retail jobs is not jiving with the story of a strong consumer. The net loss of 3,000 realtors is also not jiving with the story of a rebounding housing market.
Average hourly earnings fell -0.04%, the first such decline since October 2017. The year-over-year trend in wages continues to fall, from 3.3% in July to 3.2% in August to 2.9% in September - not exactly a robust labor market. Growth in weekly income year-over-year has fallen from 3.6% a year ago to 2.9% in August to 2.6% in September.
For those that look for comfort in the unemployment rating falling to the lowest level since December of 1969, a recession began in January 1970. Employment is a lagging indicator, not a leading one.
U.S. Treasuries finished Friday little changed despite the day’s equity rally - as usual, the bond market ignored the headlines and saw the details for what they were. The 2-year yield increased one basis point to 1.39%, while the 10-yr yield declined basis points to 1.52%.
Thought for the Day
“Don’t cry because it’s over. Smile because it happened.” – Dr. Seuss
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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