Sep 30, 2019

Market News: What to Expect in the Markets This Week

By Caleb Silver

What to Expect This Week:

The third quarter of 2019 comes to a close on Monday (where did the year go?).
Earnings season will kick off in a couple of weeks, except for a few companies that report off-cycle, such as Pepsi (PEP), Constellation Brands (STZ), and Bed Bath and Beyond (BBY), which all report next week. They all have their fingers on the pulse of the global consumer, so their forecasts will be important to listen to.
The theme of the second quarter earnings was the impact of the trade war and global uncertainty balanced by the strength of the U.S. consumer. We'll see if that narrative holds up, and more importantly, if companies are taking down forecasts going into the final quarter of the year.
Late Sunday, a reading of private manufacturing in China came in better than expected. The Caixin/Markit Purchasing Managers Index posted its best reading in 19 months. This Tuesday is the Republic of China's 70th anniversary and the stage will be set for President Xi to proclaim China's rise since he became president, and present his future vision. Note that the U.S. and Chinese trade representatives are planning to meet on Oct. 10.
We'll get U.S. manufacturing reports for September on Tuesday. That has also been trending lower until last month, when a rise in new orders and output growth boosted the U.S. Purchasing Managers Index off of 10-year lows. Export growth, however continued to weaken, which has been the pervasive theme since late 2017.

U.K. GDP and Brexit

We'll get the final second quarter GDP results for the United Kingdom on Monday and the forecast is for a 0.5% drop. That would be the first negative quarter of growth for the U.K. since 2009. But, let's be honest... all anyone cares about is if, how, and when Brexit will be resolved. Now that Parliament is back in session after a high court judge ruled that PM Boris Johnson's attempt to prorogue it was unlawful, the clock is ticking towards the Oct. 31 Brexit deadline.
 The potential outcomes are:
  • The UK asks for and is granted a delay by the EU, pushing the Oct. 31 deadline out and delaying Brexit
  • The U.K. asks for and is refused a delay, or doesn't ask for a delay, and the U.K. has to Hard Brexit out of the EU on Oct. 31
  • Members of the U.K. Parliament and PM Johnson miraculously agree on a plan that the EU blesses, and the U.K. exits the EU with a deal on Oct. 31
  • None of the above, and Parliament holds a "no confidence" vote on PM Johnson, and everything is thrown up in the air
  • Greenland buys the U.K. (I kid... it's Friday)

U.S. Jobs Report (Friday)

Friday brings the September nonfarm payrolls report. The U.S. jobs market is tight. Unemployment is low and we've seen some real wage increases that have helped boost consumer confidence. There are signs, however, that both are starting to show weakness.
 As mentioned earlier, consumer confidence in the U.S. weakened in the past month—the second in a row. It's still relatively strong, but the trade war and other political uncertainties are starting to wear down the consumer.

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