Please find below a detailed economic and market news update from the research team at Brooks Macdonald, received yesterday afternoon. The article provides an insight into the markets’ response to Brexit developments and the ongoing Covid-19 pandemic.
- US earnings season begins this week but with few companies guiding analysts ahead of the numbers, we expect surprises
- The European Council meeting on Thursday and Friday was meant to be the deadline for a Brexit agreement but this is likely to be delayed
- With a number of US data points being released this week, we will see whether the US economy is coping with its second COVID-19 wave
US earnings season begins this week but with few companies guiding analysts ahead of the numbers, we expect surprises
Risk assets continued their rise at the end of last week as markets looked through the doubtful state of pre-election stimulus and focused on significant aid post.
As is tradition, the US financials sector will kick off the Q3 reporting season and this week we will see earnings reports from JP Morgan, Wells Fargo and Morgan Stanley amongst others. According to Factset’s Earnings Insight, the expected US earnings per share decline is -20.5% year-on-year for Q3, with Energy and Industrials expected to lead the decline1. As with the second quarter, Technology and Healthcare are expected to be considerably more resilient, but all sectors are expected to see a year-on-year fall in earnings. As we know, earnings in aggregate are typically ‘beaten’ as analysts reduce forecasts ahead of the season and management keep something up their sleeve. A point of note is the small number of companies, compared to history, that have issued earnings guidance for Q3. This sets the scene for a surprise either to the upside or the downside.
The European Council meeting on Thursday and Friday was meant to be the deadline for a Brexit agreement but this is likely to be delayed
The European Council summit takes place on Thursday and Friday of this week and was the previous deadline set by Boris Johnson for a deal to be agreed in principle. The last few weeks have seen improvements in rhetoric but we appear a while away from a comprehensive deal. Over the weekend, Prime Minister Johnson had talks with Macron and Merkel, so conversations are at least happening at a senior level. Given the timelines, we expect this week to end with an announcement of continued talks. Good progress has been made in recent weeks but for fishing rights and state aid remaining the key issues to thrash out. While Sterling (against the Euro) is off its lows, there is still considerable uncertainty baked into the UK’s currency, and foreign exchange traders expect this to continue for several months until the 31st December deadline looms large.
With a number of US data points being released this week, we will see whether the US economy is coping with its second COVID-19 wave
Some of the hard data from the US will be released for September this week, including Consumer Price Inflation, retail sales and industrial production. Markets will be watching these data sets closely to see if the US economy really has been insulated from the economic restrictions of the second COVID-19 wave, as some of the ‘faster’ data has suggested. Over the next few weeks, we will have a far richer US picture from both a corporate and economic perspective.
Please check in again with us soon for interesting market commentary and up to date information on world-wide events.
Please stay safe.
Chloe
13/10/2020