Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,167 words, < 5 minutes.)
- EU agreed to grant the U.K. a three-month Brexit delay until Jan. 31. (Bloomberg)
- A 38,000-square-foot Los Angeles home with an original price tag of $250 million was sold after three years on the market and multiple markdowns for around $94 million. (WSJ)
- LVMH, French owner of Louis Vuitton and Givenchy, offered $14.5 billion to buy jeweler Tiffany & Co. (Bloomberg)
- “The blow to our economy is comprehensive,” Paul Chan, Hong Kong's financial secretary, said in a blog post on Sunday, adding that a preliminary estimate for third-quarter GDP would show the territory had fallen into a recession. (Reuters)
1 big thing: It could be a wild week
This week will set the table for the fourth quarter in what's been a wild and highly unusual year. The stock market has risen more than 20% in 2019, but that's largely been because of a recovery from December's selloff in the first quarter.
The big picture: "Everybody’s squared up" in anticipation, says Ellis Phifer, market strategist at Raymond James. But this week has the potential for "all hell to break loose."
What's happening: In addition to Friday's all-important U.S. nonfarm payrolls report, investors will digest a massive chunk of earnings reports and hear from three major central banks.
- 156 S&P 500 companies, including six members of the Dow 30, are scheduled to report third quarter earnings results, FactSet notes.
- Germany and the U.S. will report important jobs and manufacturing data, with both countries bracing for weak readings.
- The Fed, the Bank of Canada and the Bank of Japan will each announce policy decisions, with the Fed and BOJ expected to loosen their current policy stances.
Between the lines: If the Fed doesn't cut interest rates or deliver hawkish forward guidance on Wednesday, it will weigh heavily on the market, which sees a 90% likelihood of a cut this month and expects more in 2020.
- Conversely, a dovish signal could power the market higher, especially in light of the increased pace of corporate buybacks announced in Q3.
The intrigue: Investors have a lot of dry powder — data from the Investment Company Institute shows more than $160 billion has been pulled from equity mutual funds and ETFs this year while money market funds, which are effectively savings accounts, have swelled to the highest level since 2009.
- "The gap between US equity fund flows relative to bond and cash funds during the past 12 months is the widest since 2008," Goldman Sachs research analysts said in a note.
By the numbers: Companies reporting this week are coming in with low expectations.
- Nine of the S&P's 11 sectors are reporting a year-over-year decline in their net profit margins and the index's forward P/E ratio is currently 17, above both the five- and 10-year averages.
- However, 80% of companies who have reported earnings so far have beaten estimates.
The bottom line: The stock market has risen on just about any form of good news this year and has rallied after bad news. But, with little faith in the U.S.-China phase 1 trade deal, a new catalyst is needed.
2. Facebook needs strong earnings to distract from its latest issue
Facebook and its CEO, Mark Zuckerberg, have been on another wild ride.
What's happening: They've been dragged on television by opportunistic members of Congress and are fielding multiple anti-trust inquiries, while attempting to push forward with the Libra digital currency, which is facing mounting resistance from regulators and legislators around the globe.
- Its latest quandary is a refusal to ban political ads that include false statements. Data shows a wide majority of users want all political ads off the platform.
Reality check: Despite all the bad publicity, the one thing Facebook has been able to do quarter after quarter is deliver solid earnings.
By the numbers: Analysts are expecting earnings of $1.90 per share and Q3 revenue of $17.3 billion, 26.3% higher than last year, when the company reports after the bell on Oct. 30.
- However, Facebook is on track to post earnings per share of $6.26 on revenue of $70.2 billion for the year, an annual EPS decline of 19.07%.
- It would be the first year of negative EPS growth since 2012, the year Facebook debuted on the Nasdaq.
3. All eyes on Argentina
Alberto Fernandez was declared Argentina's next president on Sunday night, leading to a likely showdown with creditors on Argentina's bonds.
What's happening: Fernandez has repeatedly called for a "reprofiling" of Argentina's $100 billion debt load — much of it taken on by current President Mauricio Macri — often invoking a default in Uruguay from 2003 as an example.
- Argentina's economy is expected to begin recovery next year from an extended recession during which its currency fell from around 15-to-1 against the dollar to nearly 60-to-1, poverty increased dramatically, and inflation sky-rocketed.
The intrigue: New IMF managing director Kristalina Georgieva has indicated she is amenable to continuing Argentina's bailout program — a record $57 billion package signed by Macri.
- "The fault [for Argentina's current condition] is not in politics, but we also don’t live outside the real world in our function," she said during a Q&A session at the IMF's fall meetings earlier this month.
- "What we are very committed to is to try to find a way we can be helpful to the Argentinean people," Georgieva said.
The big picture: There also appears to be appetite by Fernandez and Vice President-elect Cristina Fernandez de Kirchner, Argentina's president from 2007-2015, for maintaining the program.
- The IMF has not officially said whether they will continue to disburse $5 billion worth of funds from the program.
What's next: Investors have driven the price of the bonds to below 40 cents on the dollar, below the recovery value of Uruguay's bonds. This has some emerging market fund managers calling the bonds cheap and looking to buy.
- However, others are staying away given Argentina's history of defaults and Kirchner's personal history of refusing to play ball with bondholders.
4. Business outlook: Cloudy with a chance of lower growth
A survey released this morning from the National Association for Business Economists suggests hiring by U.S. companies may slow further with wages curbed as well.
What's happening: The survey of member business owners showed hiring was far less prevalent in the third quarter, and its reading of employment fell to a five-year low.
- Wage and salary growth "was much less widespread" in the third quarter than in the previous four years, the survey found, with a majority of respondents (53%) expecting wages and salaries to be unchanged over the next three months.
What they're saying: “More panelists report falling sales and anemic profit margins at their firms over the past three months than in the previous survey,” said NABE Business Conditions Survey chair Sam Kyei, chief economist at SAK Economics.
- “Materials costs rose, on balance, at respondents’ firms, marking a 14th consecutive quarter of higher costs. However, price increases were only slightly more common than price cuts at respondents’ firms," he said.
- Kyei also noted that fewer respondents reported increasing capital spending on equipment and information technology at their firms than at any time in the past five years.
5. The most interesting thing this week: ISM Manufacturing PMI
The U.S. jobs report will be the most watched piece of data this week, but Friday will also bring the October reading of the ISM's manufacturing data. The index fell to the lowest level since June 2009 in September.
Why it matters: The U.S. manufacturing industry has seen a consistent decline all year, falling into recession earlier in the year and showing outright contraction for the second month in a row last month.
Yes, but: The IHS Markit manufacturing survey showed much better readings for September, including the second straight monthly increase and the highest reading in five months.
- And recent regional manufacturing reports from the Fed also have shown stronger numbers.
- Analysts expect the ISM's manufacturing index to improve, predicting a return to expansion.
The big picture: Manufacturing is a small portion of the U.S. economy, but is considered a leading indicator.
- The services sector, which makes up close to 70% of the economy, has been closely following manufacturing. If it falls into contraction that could mean real trouble.
- However, a rebound in the ISM report would be great news for the market.