The Market Week Ahead: Oct. 7 – Oct. 11

 

Oct. 7, 2019 – Trade is on the front burner this week as a delegation from China travels to Washington to resume talks. 

China, perhaps sensing a turning of the tide given weak economic data in the U.S. recently, suggested over the weekend that it will try to pursue a limited deal that focuses on areas the two sides agree on. This strategy leaves the thornier issues of reforming China’s industrial policies and government subsidies for later, while potentially opening the door for U.S. exports of agricultural and energy products as well as the implementation of some commitments from China on intellectual-property issues and a scaling back of some U.S. tariffs.

President Trump has said repeatedly that he will not agree to anything less than a comprehensive deal that meets all of his demands. How long this week’s negotiations can go on while the two sides seems to have some disagreements about the premise is an interesting question in and of itself, but it doesn’t seem like the sides are particularly close to announcing a deal.

Timing of a deal is important because tariffs are a drag on U.S. businesses and households. Goldman Sachs said in a note released this morning that the cost of tariffs has been borne “entirely” on consumers and businesses in the U.S. According to Goldman, not only have Chinese firms not lowered prices to compensate for the import duties, but U.S. firms have raised prices to reflect the higher cost of the Chinese competition. 

In an economy that is powered by consumer spending, these cost increases paired with stagnant wages likely point to slowing growth in the economy.

Short of a deal, which seems unlikely, the Federal Reserve is where the market, in its great and unmatched wisdom is turning for hope these days. The central bank seems likely to cut rates again when it meets in October in an effort to do what it can to try to keep the economy humming along.

The impact of a 25-basis-point reduction in overnight lending rates on the average consumer is hard to model, but the Fed only has a few levers available and that is the easiest one to pull. 

Positive trade headlines will likely boost the market this week, but announcements about “progress” have been increasingly ineffective at cheering traders as we’ve gotten a number of those that lacked any concrete signs that an actual deal is coming. 

Economic Events this Week

Inflation data on Tuesday and Thursday will be interesting, although PPI and CPI aren’t the Federal Reserve’s preferred measures of inflation, it is likely that those looking to bet on a Fed rate cut will weak numbers as a positive. The FOMC minutes will probably cause some volatility Wednesday afternoon, but it doesn’t seem particularly likely that they’re going to have much lasting effect. 

  • Tuesday
    • 8:30 a.m. – PPI
  •  Wednesday
    • 10:30 a.m. – EIA Crude Oil Inventories
    • 2:00 p.m. – FOMC Minutes
  • Thursday
    • 8:30 a.m. – CPI
  • Friday
    • 10:00 a.m. – Univ. of Michigan Consumer Sentiment – Prelim

Earnings Reports this Week

This is the calm before the storm. Earnings season begins next week.

Tuesday:

  • Before the bell: DPZ, HELE
  • After the bell: LEVI

Wednesday:

  • Before the bell: None
  • After the bell: None

Thursday:

  • Before the bell: DAL
  • After the bell: None

Friday:

  • Before the bell: None

Sector Analysis 

Strong Sectors past Month

These sectors are up 5% or more in the last 20 trading days:

  • Agriculture

Weak sectors past month

These sectors are down 5% or more in the last 20 trading days:

  • Oil Services
  • Broker-Dealers & Securities Exchanges
  • Oil
  • Coal
  • Oil & Gas Exploration

Strong sectors past five trading days

These sectors are up more than 3% in the last five days.

  • None

Weak sectors past five trading days

These sectors are down more than 3% in the last five days.

  • Oil & Gas Exploration
  • Oil Services
  • Oil
  • Broker-Dealers & Securities Exchanges
  • Regional Banks
  • Banks

Bobby Raines

Bobby Raines

Bobby Raines is the Managing Editor of the Market Intelligence Center. He has degrees in Mass Communications and History from Emory & Henry College. Bobby worked at a mid-sized daily newspaper before making a switch to covering the financial industry full time in the years leading up to the financial crisis. He has been a member of the Fresh Brewed Media team since 2011 and has served as a writer and analyst. You can write to him at braines@marketintelligencecenter.com or follow him on Twitter: @BRatMICenter.

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