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The Global Markets Weekly – 10/12/18
February Replay? Italy, China GDP, Earnings Ahead
With few edits, a good portion of this week’s summary could be cribbed from our February 2nd publication. Call this the second most “anticipated” correction-like event in 2018. Mirroring Jan-Feb, several weeks of rising long-term interest rates were largely ignored by the U.S. equity market, add some technical factors, some news specific to tech shares, trade headlines, and the air pocket that opened so far could satisfy any number of narratives, in hindsight. President Trump got in on the action, blaming the Fed. As the chart shows, it will take plenty more to shake the Fed off its current course.
Also echoing conditions earlier this year, observers should monitor hints that rising input costs—wages and tariffs—could be impacting profitability ahead, with key updates coming as the Q3 earnings season picks up.
Incorporating the usual beat percentage, S&P 500 earnings may be up 25% y/y (currently tracking at 20% y/y), markedly above global peers. Strength is broad, save for the dollar-impacted and low-margin staples firms, rate-impacted real estate, and slow-growth utilities. Clearer slowdown will not occur until Q1 2019, a single-digit y/y pace again in reach as energy prices and tax cut impacts recede.
This week includes a number of key events including Q3 GDP in China, the UK-EU Brexit negotiations, and Italy’s submission of a budget plan that may still be rejected by Brussels. Local 10yr bonds spread to German bunds at over 300 bps compares to highs around 500 bps in the middle of the 2011-2012 crisis, and below 120 bps in the second quarter of this year. That yield pickup relative to 0.5% on the 10yr bund looks increasingly attractive relative to risks.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Sep Retail (Mo)
Ex-autos Sep IP (Tu) FOMC Mins. (We) |
0.7% / 0.6% m/m
0.6% / 0.4% m/m 0.1% / 0.2% m/m
|
Sturdy Q3 spending, late-quarter lift on autos. Entering holiday season, strength needed.
Low-impact given post-meeting flow. |
| Euro | Final Sep CPI (Wed)
Core |
2.1% / 2.1% y/y
0.9% / 0.9% |
Light data week, weekend/Monday brings key budget day for Italy. |
| U.K. | Sep CPI (We) | 2.6% / 2.6% y/y | Brexit negotiations the bigger event. |
| China | Q3 Real GDP (Fr) | 6.7% / 6.6% | Trade war bites? Authorities putting out fires left and right. |
| Japan | Sep CPI (Fr)
Ex fresh food Ex food & energy |
1.4% / 1.3% y/y
1.0% / 1.0% y/y 0.5% / 0.4% y/y |
Prices will decelerate into 2019, any increase beyond will be due to tax effects if carried out. |
| Korea | Rate Decision (Th) | +25 bps / unch | Consensus split, but reduced trade uncertainty should allow move. |
[private]gmw_1012[/private]
Research Studies
DE | Sinai Economic and Market Perspectives | Seeds of A Sovereign Debt Crisis Planted – 02/03/21
[private] [/private] Seeds of A Sovereign Debt Crisis Planted Allen Sinai* The U.S. and Global economies have undergone a fiscal/debt revolution of huge import from which there will be no turning away! The main catalysts read more
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